It was a settlement like no other. The nation’s top banks consisting of Bank of America, Wells, Chase, Ally Financial (formerly GMAC), and Citibank agreed to fork over a record $25 billion in response to charges of “robo-signing” and other irregularities concerning foreclosure procedures. The big banks agreed to forgive principal, establish counseling centers for distressed homeowners, and set up training programs, thereby putting a whole new face on mortgage lending. Accordingly, there was a feeling of “things are surely going to change” in the air, and they did. More lenders have doubled down on their compliance practices and expanded their quality control procedures than ever before. The need for testing and continuing education has increased exponentially. One would think that with the enhancements put in place to corral the mavericks in the industry, the attorney generals (AGs) would be satiated, right? Well, that is not the case.
Many of the same AGs who signed on the master settlement are now going solo to implement their own state-specific measures to keep homeowners in their homes. AGs are calling the recently established procedures inefficient, unnecessary and shoddy. As such, each AG is proposing their own rules to right the wrongs throughout the land. For instance, the California legislature is voting on its own new set of statutes; Oregon talking about modifying its state’s modification process; and New York is proposing the criminalization of foreclosure forgeries. This is totally an example of the left hand not knowing what the right hand is doing.
What many of these individual regulators fail to recognize is that as they go it alone, the consumer pays for the trickle down effects of any new rule. For each lender to be aware of what Iowa is requiring, versus what Idaho is legislating, compared to what Indiana is enacting, and Illinois is instituting, creates a legal quagmire of inconsistency. If a lender, on a state-by-state basis, has to pay to retain a cadre attorneys to draw up policies and procedures for each state, the uncoordinated billing will skyrocket and the effect will translate into higher rates, more disclosures, and longer wait times in quality control, which eventually leads to dissatisfied customers.
As the rules and regulations have increased, consumers (or customers) have grown more irate. HVCC, the Housing Values Code of Conduct has killed appraisals. The new GFEs (Good Faith Estimates) have confused borrowers and loan officers alike, and the stringent timelines have all decimated more deals than can be counted. So, the increase in regulations has done more to hurt consumers than help. An increase in rules and regulations without coordination or a consolidation of ideals at a national level is a recipe for disaster. In fact, the majority of the lenders that signed onto the original settlement officially thought that their multi-billion portion of the master settlement took care of all of this; I guess not.
It appears that each state AG wants their own platform to waive the proverbial flag of victory from their own state capital and not share the spoils. Unfortunately, uncoordinated efforts will not serve the consumer. Instead, the winner will be the individual who finds the lender with the lowest cost structure that in the end will yield the lowest rate at the best terms. Too bad real estate is governed at the state level; otherwise, just as these AGs are going it alone to make their own rules, the consumer should be able to cross their state line to find the state with the least amount of regulations to find the lowest cost financing that suits them and their families, without being burden by an AG with something to prove or an ego to satiate.
Preston Howard is a mortgage broker and Principal of Rose City Realty, Inc. in Pasadena, CA. Specializing in various facets of real estate finance, he can be reached at firstname.lastname@example.org.