- Shopping for a loan can be a good idea. But not every product and service can be reduced to price-quantity-part number.
- Those consumers most vulnerable as lender pigeons are also least able to understand disclosures and contracts, and making them more complex is a fool’s errand.
As everyone in the real estate business knows — and new buyers and sellers are finding out — TRID (TILA-RESPA Integrated Disclosures) became the law of residential mortgage lending and financed sales last October. TRID is the work of the Consumer Financial Protection Bureau (CFPB).
The trouble with TRID
I am not one of the anti-government types, nor a reflexive opponent of regulation or even the CFPB. The credit bubble, 2002 through 2007 was the worst regulatory failure of my lifetime — by the absence of regulation. The CFPB has done some good work in choking abuses of payday loans and loan servicers of all kinds.
However, TRID is the worst regulatory act of my life, foolish and arrogant. Its lesser failure is its operational effect on lending. All of us in the mortgage business now spend more time on compliance with obtuse rules than on lending. All of us have had to staff-up, and every consumer pays the price. The first big sign of CFPB gravel in our gears: The drop in November sales of existing homes followed by an equivalent jump in December — that was TRID delay. Every loan takes at least a week longer to close and often two, and every consumer bears the cost of longer rate locks.
Nobody likes a whiner, and the mortgage business lost its right to complain by gross misbehavior in the bubble. But the larger TRID failure is entirely a cost to the consumer and a very bad thing: TRID has made borrowing and settlement incomprehensible to consumers.
The march to nowhere
The CFPB began this march to nowhere in 2009. Existing real estate closing documents — Good Faith Estimate (GFE) and HUD-1 — were then almost 40 years old. Awkward from time to time, but only one and two sheets of paper, respectively, comprehensive as to costs and participants in the transaction, and familiar to anyone who had bought a home since the 1970s.
In 2009 the CFPB introduced a new, three-page GFE. Its purpose was to make it easier for borrowers to comparison shop among lenders, introducing a maze of subtotals of services borrowers could shop for, could not shop for or might shop for. That GFE was a complete failure on two grounds: It was incomprehensible, but far worse, it misunderstood consumer needs, practices and skills.
Shopping for a loan can be a good idea. But trying to reduce mortgage pricing, application, processing, approval and closing to rate and fees is the classic, colossal failure of so much information technology.
Not every product and service can be reduced
Not every product and service can be reduced to price-quantity-part number. Understanding the legal fabric of a mortgage and real estate transfer requires most of a year in law school, or state education, testing, licensure and supervised apprenticeship. Most borrowers and Realtors mortgage-shop for quality of execution above all other things.
Of course there were terrible abuses during the bubble: negative amortization, teaser rates, balloons, the odious 2/28 subprimes and criminal disinterest by lenders in borrower ability to repay. However, none of that misbehavior had anything to do with the perfectly serviceable pre-2009 GFE and HUD.
The CFPB has failed to grasp the obvious: Those consumers most vulnerable as lender pigeons are also least able to understand disclosures and contracts, and making them more complex is a fool’s errand.
‘We’re going to do all we can to make you shop’
After 2009 the CFPB got an earful on that point from the industry, but the CFPB shopping ship steamed on. Its surveys found that half of more of consumers did not shop for loans. Horrors! Perhaps instead they took advice from Realtors, or family, or co-workers or financial advisors of many kinds. Nevermind. We at CFPB know what’s best for you, and we’re going to do all we can to make you shop.
The instant you have applied for a loan, lenders must send a Loan Estimate to you. Even if you did not want to apply! If you’ve given us financial information, an almost accidental list (the “RESPA 6” items), we must send to you an LE. Twenty-eight pages of official government imposition, including CFPB instructions.
The LE is so bad that even informed consumers just click through the DocuSign without reading, many clearly embarrassed to say that they don’t understand it.
During processing, we must send equally imposing redisclosure masses for matters as essential as correcting a ZIP code or middle initial.
At the end comes the Closing Disclosure, shorter but hopeless as its swamp of subtotals is based on the LE structure. And the CD must arrive in borrower hands days before settlement and inflexible as to last-minute changes common to real estate sales.
Like an alien Triffid landing on Earth, this infant monster should be smothered in its crib, and all CFPB settlement re-design rolled back to 2009 ante. The CFPB is so all-powerful, independent of supervision by other agencies or the executive branch itself that I don’t know how its TRID abuse can be stopped.
I have this hope: the beloved child of a powerful Congressperson this spring will try to buy a house and will call Mom or Dad to say, “My lender has sent me dozens of documents that I don’t understand and that scare me. Will you read them and explain them to me?”
I can hardly wait.
Lou Barnes is a mortgage broker based in Boulder, Colorado. He can be reached at email@example.com.