WASHINGTON—A federal watchdog agency for financial products could have prevented the 2008 mortgage crisis, according to the president’s pick to get the new Consumer Financial Protection Bureau up and running by next summer. “The crisis of 2008 was a preventable disaster,” Elizabeth Warren told a Consumer Federation of America Washington conference.
The CFPB “should have been in place before dangerous mortgages and securitizations injected so much risk into the system that they ultimately brought our economy to its knees,” she said.
Two years ago, she launched a campaign at the 2008 CFA conference urging Congress to create an agency that protects consumers from abusive and risky financial products.
Congress created the CFPB as part of the Dodd-Frank reform bill. Today, Warren is serving as an assistant to President Obama and a special advisor to Treasury regarding CFPB. She has been tasked with getting the agency up and running by July 21 of next year—but will not be its day-to-day manager.
Come next summer, the consumer protection staff of seven regulatory agencies will be transferred to the bureau, which will assume jurisdiction over the Real Estate Settlement Procedures Act, Truth in Lending Act and 17 other consumer protection regulations.
Warren stressed that the CFPB has a clear mission that the American people will support—and must take a new approach to regulation in order to be effective. Clever attorneys find ways to get around target rules aimed at abuses practices, she said. “I want to focus on how to get tough, no-nonsense changes that will last and will address real underlying issues,” she said.
The consumer credit market is “broken,” she added, because customers cannot tell the price, or risk, of a financial product or compare it with other products. “Prices should be clear upfront and risks easily explained,” she said, allowing for comparison shopping for mortgages.
Meanwhile, the Fed still has jurisdiction over TILA and is working on several mortgage regulations but is getting some push back from industry and consumer groups. The American Bankers Association, Consumer Mortgage Coalition and Mortgage Bankers Association are urging the Fed to postpone implementation of new mortgage disclosures that go into effect Jan. 30. The new disclosures mandated by the MDIA involve the presentation of changes to the interest rate or payments in tabular form. Lenders have to provide a statement to the borrower that they cannot guarantee a refinancing of the loan in the future. The trade groups want the Fed to make compliance voluntary on Jan. 30 provided lenders are in compliance with the 2009 RESPA amendments. They say a major priority of the new CFPB is to merge and streamline mortgage disclosures in 2011. “The lender associations believe the [Fed] Board should consider this rulemaking effort in light of the broader [CFPB] mortgage reform effort, and minimize the addition of repetitive forms and rulemakings in favor of a more comprehensive approach,” the Nov. 23 letter says. Consumer attorneys and legal services groups are urging the Fed to withdraw a proposal that would “eviscerate” borrowers’ rights to rescind abusive mortgages or stop foreclosures. “At the depths of the worst foreclosure crisis since the Great Depression, we are surprised that the Federal Reserve Board has proposed rules that would eviscerate the primary protection homeowners currently have to escape abusive loans and avoid foreclosures: the extended right of rescission,” according to a joint comment letter signed by 200 consumer attorneys.
TILA currently gives a borrower up to three years to rescind a mortgage if the lender did not provide the proper disclosures at closing. The Fed’s proposed rule would “seriously undermine the reliability” of TILA disclosures. More importantly, it would make it difficult to exercise this right of rescission if a borrower cannot immediately pay off the loan. “This proposal would make it completely useless to all but the wealthiest,” a Nov. 16 comment letter says.
