More Regulation and a “Dumbed Down” Consumer

There is a lot of finger-pointing going on in the middle of the mortgage meltdown of 2007. As time goes on, the blame-game is only going to get worse. Problems in the mortgage industry with regards to Sub-Prime loans and the potential foreclosures arising from the many “bad” loans given to consumers will be a reality (and a good media-shark-feeding-frenzy) for some time to come. The blaming and the real problems will perpetuate a state of confusion for the industry, government, and consumers.

Still, there are businesses to run—loans to originate—and families with the desire to own a home of their own.
What is a person to do today? Winter approaches and those folks who are faced with the prospect of a rental apartment with poorly insulated windows, a landlord who doesn’t provide enough heat, or even something as mundane as parking the car on the street (and having to shovel it out of a snow drift instead of backing it out of your own garage), may very well be thinking, “I really want to buy a home of my own.” And they want to do it now, not later.

For those people, I imagine it’s easy to be scared by all the crazy things you’re reading in the newspapers and seeing on television. But, there must come a point where you have to say, “Enough, already! I want to own a house, and I have to trust that this will work out.”

The truth is, it does work out. It has worked out for so many millions of homeowners before you. The blame game will sort itself out, the confusion will subside, the proliferation of frightening media stories fritter to a dull buzz in the background. Sure, there will still be problems and foreclosures, but at the end of the day, life goes on. An entire industry and an entire lifestyle—homeownership—isn’t going to just up and disappear.

More regulation is called for, and consumers of mortgage products want to have a clear understanding of what it is they are signing for.
One of the hot-button items in any discussion of the meltdown is the issue of consumers signing documents at mortgage closings. Many of the people pointing fingers of blame at the mortgage industry—and, by extension, government regulators—say the documents a consumer signs at closing are so convoluted and difficult to understand that it is no wonder people didn’t know they were getting into bad loans.

There are others who claim the consumers were “dumbed down” and so eager to sign on the dotted line to obtain their dream home (or that ridiculously low interest rate of 1.75%!), they didn’t bother to read—and didn’t have the wherewithal to understand if they did bother—the closing documents. Many people are calling for more regulation to help protect the “dumbed down” consumer.

I beg to differ.

As to “dumbed-down public” let me say this: current Federal Regulations (RESPA!) require full disclosure of the terms of the mortgage. The consumer need only READ the forms or hire a lawyer to read the forms on their behalf and for their own protection.

The government mechanism already exists for consumer protection. No equivalent mechanism exists (to the degree of required disclosure and compliance with such disclosure regulations) in any other industry: not in health care, not in insurance, auto financing, credit cards, student loans (!!!), stock investing, or any other of a myriad of financial areas where consumers make important decisions about their finances.

Sure, there have been plenty of scummy mortgage people working in the industry in recent years, I dislike them as much as anyone else (maybe more, if you can believe that), but the bottom line is what the consumer wants and how the consumer obtains what they want.

Maybe the consumer reaction to this mess will be the simple act of taking the time to pore over those documents at closing, ask pointed questions, and refuse to sign anything until all issues, concerns, and questions have been addressed.

While the current government regulations provide for thorough disclosure, there is an even simpler existing mechanism available to consumers to protect themselves from harmful mortgage loans: that of hiring an attorney.
How do people make the biggest purchase of their lives without an attorney?

How do you sign mortgage documents without reading the required disclosures that were sent to you weeks before the closing, and then comparing those original disclosures with the closing documents?

The protection for consumers is built into the system already. There’s no “dumbed-down public.” On the contrary, the public today should be better informed about these important financial decisions than at any time previously.

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