I’ve been watching carefully the proposal, creation and building of the Consumer Financial Protection Bureau, the 6-week-old federal watchdog agency that’s been tasked with consumer protection and has declared itself on a mission to "empower consumers to take more control over their economic lives."
The organization, which was conceived of and launched by Harvard law professor and longtime consumer advocate Elizabeth Warren, has sketched out a vivid, aspirational vision of the future of consumer financial markets in America, painting a picture of:
A consumer finance market place in which:
- Customers can see prices and risks up front and where they can easily make product comparisons;
- No one can build a business model around unfair, deceptive, or abusive practices; and
- The interests of American consumers, responsible providers, and the economy as a whole are served.
Though this vision is inarguably desirable, the agency, though brand new, is not without its detractors. Some say that the agency has been given excessive power, and has an anti-bank bent. Others feel the bureau’s $329 million dollar annual budget should have been directed to bailing out consumers.
I suspect the agency’s statutory aim of consolidating consumer protection functions previously scattered across various federal agencies, and devoting $300 million per year to avoid another $3 trillion catastrophe, as one blog commenter vividly put it — a position that assumes consumers’ failure to understand their mortgages contributed to the recession — is a worthy aim.
Like it or not, the bureau kicked off its first effort, Project Know Before You Owe, in May, months before its doors opened. This project seeks to consolidate two mortgage disclosures — the Truth In Lending Disclosure and the Good Faith Estimate — into a single disclosure optimized for simplicity and intelligibility.
The bureau has floated multiple versions past its online followers and has collected over 18,000 comments and suggestions on these versions, which you can see on the agency’s blog (where you can also sign up to be notified as the process goes on, so you can contribute your input).
Next, the bureau plans to take Project Know Before You Owe on the road, testing the prototype form and refining it through a series of user interviews in Albuquerque; Baltimore; Chicago; Los Angeles; Birmingham, Ala.; and Springfield, Mass.
The bureau deserves credit for trying to move mortgage disclosures into the realm of common sense, and for moving the disclosure development process into this century by virtue of such processes as collecting feedback via an interactive tool on its website and using data visualizations like heat maps to determine which parts of the form were the most commented on.
But perhaps one of the most important insights I’ve seen in the course of Project Know Before You Owe is the simplest of them all. In a progress report entitled "Building the CPFB," Elizabeth Warren, the bureau’s founding head, provided a very fundamental statement of the bureau’s ultimate mission for the disclosure form.
The stated aim: to "better position (consumers) to answer two basic questions: Can I afford this mortgage, and can I get a better deal somewhere else?"
With all the mental and financial gyrations I see consumers in general, and my readers, in particular, do in an effort to get educated, and to fully understand and make the right decisions about mortgages, it struck me while reading the CFPB report that these are, ultimately, the only two mortgage questions that matter.
Sure, there are issues around timing your home purchase or refinance, but those issues tend to be more grounded in what makes sense for your life or what’s going on with the market at any given time — and the latter issue of market timing is one that has been mastered by none.
Warren Buffett once famously quipped that the only thing market forecasters do well is "make fortune-tellers look good." Instead of being fixated on interest rates or market predictions, I submit that housing consumers would do well to take a hint from both Warrens (Elizabeth and Buffett) and fixate on:
- Whether they can afford a given mortgage, fully understanding their own finances and the costs and payments associated with the loan; and
- Whether they can get a better deal elsewhere.