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.