Chapter 1. Shopping for Loans Made Easy, or Compliance QVC
By: James Bruce, EVP and General Counsel
Newsflash – nearly half of mortgage borrowers don’t shop around when they buy a home. This is according to a survey released by the Consumer Financial Protection Bureau on January 13, 2015.
In the wake of this report, watch for new regulatory and disclosure requirements to redress the lack of consumer shopping. It will go something like this:
Before making a mortgage loan, a lender must give a loan estimate disclosure and require the consumer to shop at least one other lender, bring back a loan estimate disclosure from that second lender and show the first lender that it – the first lender — is offering a better loan when the two disclosures are compared side by side. If the consumer is unable to show how the first lender’s loan is a better deal, the first lender must do the comparison for the consumer by creating a comparative disclosure and walking the consumer through the comparison. If the consumer still cannot say in his or her own words why the first lender’s loan is a better deal, the first lender must require the consumer to take a semester of night classes at the local community college – Personal Finance 101. If the consumer cannot attend or afford the classes (assuming, of course, that community college courses are not yet free), then the lender must offer free night or weekend classes taught by the lender’s Chief Consumer Finance Professor (a newly-required regulatory position) at times convenient for the consumer. This new position should be referred to as “Profesor Jefe de Finanzas del Consumidor” when dealing with New Americans referenced in President Obama’s executive memorandum, “Creating Welcoming Communities and Fully Integrating Immigrants and Refugees.” The consumer must pass a written exam to document understanding of the comparative disclosure. If unable to pass the exam, the lender must then loan the requested credit amount to the consumer on a zero-interest, repayment-optional basis because the lender failed to teach the requisite personal finance concepts in a way that could be understood by the consumer. At any point in the shopping process, the consumer may opt-out of the educational program and simply request the zero-interest, repayment-optional loan. The lender may also opt out at any point by crediting the requested credit amount to an interest-bearing deposit account in the name of the consumer, but the lender must explain the Truth in Savings (TIS) disclosures to the consumer. If the consumer cannot understand the TIS disclosures, the lender must enroll the consumer in its night or weekend personal finance classes. Consumer attendance is optional.
The effective date of these new requirements will be August of 2015 to coordinate with the new and improved mortgage loan disclosures developed by the CFPB (but which are not yet completely understood by lenders or the CFPB) to better inform the consumers who shop for their mortgage loans…and those who don’t shop.
If you save this for future reference, remember to file it under “S” for Satire.