Landmark Consumer Protection Law Heavy with Strong Mortgage Rules
by Broderick Perkins, Published: September 23, 2010
President Obama recently signed the landmark H.R. 4173: Restoring American Financial
Stability (RAFS) Act of 2010 which, in part, eliminates many of the ‘so-called’ lax mortgage
lending practices that sparked the financial meltdown.
Among its provisions, the far-reaching new law creates a new Federal Reserve-based
watchdog, (giving the Federal Reserve unregulated police power) the Consumer Financial
Protection Bureau to ensure consumers get clear, accurate information necessary to shop for
mortgages, credit cards and other financial products. It also protects consumers from hidden
fees, predatory terms and deception.
It's not clear when all the provisions will roll out (as most have not yet even been written as was
the case with the Health Care Bill), but an overwhelming majority of (uninformed) consumers
demanded the protections.
Often called Wall Street Reform, the RAFS Act has many provisions for those who live on Main
Street, including a national consumer complaint hotline so consumers will have, for the first
time, a single, toll-free number to report problems with financial products and services (another
government job creation function); a new Office of Financial Literacy; and a new U.S.
Department of Housing and Urban Development (HUD) Office of Housing Counseling to boost
homeownership and rental housing counseling (a modification of an existing function).
The bureau will be lead by an independent director (ultra-liberal Elizabeth Warren, Law
Professor at Harvard) appointed by President Obama and NOT confirmed by the Senate, who
will be able to autonomously write rules for consumer protections governing all financial
institutions, banks and non-banks, offering consumer financial services or products as well as
establish and hire staff in her image and set precedence for operations of the office.
The new director will oversee the enforcement of federal laws intended to ensure the fair,
equitable and nondiscriminatory access to credit for individuals and communities (who makes
the determination of fair, equitable and nondiscriminatory).
The new law governs banks and credit unions with assets of over $10 billion and all mortgagerelated businesses (lenders, servicers, mortgage brokers, including foreclosure scam
operators), payday lenders, and student lenders as well as other non-bank financial companies,
and including debt collectors and consumer reporting agencies. Banks and credit unions with
assets of $10 billion or less will be examined for consumer complaints by the appropriate
regulator.
Among it's provisions, the RAFS Act includes help for homeowners and home buyers, including:
• Prohibiting unfair lending. It prohibits "yield spread premiums" and other financial incentives
that encourage lenders to steer (really?) borrowers to more costly loans and pre-payment
penalties that trapped so many borrowers in unaffordable loans. Thereby eliminating
compensation for independent mortgage loan originators and eliminating jobs.
• Establishing penalties for irresponsible lending (without identifying what ‘irresponsible’ means).
Lenders and mortgage brokers who don’t comply with new standards will be held accountable
by consumers for as much as three-years of interest payments and damages plus attorney's
fees. The law also protects borrowers against foreclosure for violations of these standards.
• Expanding consumer protections for high-cost mortgages. The new law expands the
protections available under federal rules on high-cost loans by lowering the interest rate and the
points and fee triggers that define high cost loans (thereby eliminating most of these loan
products for the consumer). Also, lenders must disclose the maximum a consumer could pay on
a variable rate mortgage, with a warning that payments will vary based on interest rate changes.
This has been the law for many years.
• Requiring lenders to ensure borrowers' ability to repay. The act establishes a simple federal
standard for all home loans (sort of like the simplified Form 1040): institutions must ensure that
borrowers can repay the loans they are sold. Fannie Mae, Freddie Mac, Ginny Mae, and HUD
have always had ‘a simple federal standard for all home loans’ … lenders followed those
guidelines right into the housing collapse!
• Requiring additional mortgage disclosures. Lenders must disclose the maximum a consumer
could pay on a variable rate mortgage, with a warning that payments will vary based on interest
rate changes. This has been the law for perhaps 15 years.
• Emergency mortgage relief. Based on a successful Pennsylvania program, the new law
provides $1 billion for bridge loans to qualified unemployed homeowners with reasonable
prospects for re-employment to help cover mortgage payments until they are re-employed.
There is no requirement that an unemployed person must accept a job for any less pay than
they were making before becoming unemployed ... starting over no longer is workable for folks
who find that continuing unemployment checks are a forever government benefit.
• Foreclosure legal assistance. The law authorizes a HUD -administered program for making
grants to provide foreclosure legal assistance to low and moderate-income homeowners and
tenants related to homeownership preservation, home foreclosure prevention, and tenancy
associated with home foreclosure. More paperwork costs the taxpayer more money.
• Free credit scores. Consumers will get free access to their credit score if their score negatively
affects them in a financial transaction or a hiring decision. This has been the law for many
years – 3 per year for everyone.
FYI: There is a bill in Congress now to require mortgage lenders to rent foreclosed properties
back to the owners for whatever fair market rent can be established and for an undetermined
period of time.
The commentary in red print is FYI by Ken Fisher on 9/26/10.