Fed Governor Elizabeth Duke’s Simplistic Take On Consumer Mortgage Disclosures

Fed Board of Governors member Elizabeth Duke gave a speech today at the Consumer Banker’s Association annual conference in Hollywood, and like a lot of other content emerging from that region, her comments about mortgage lending were “based on true events” but far from reality. Here’s the full speech, and below is an excerpt about mortgage disclosure reform that most regulators keep saying without really realizing the unintended consequences of new mortgage disclosures they’ve created.

This glosses over the fact that the new 3-page Good Faith Estimate that replaced the previous one-page Good Faith Estimate no longer itemizes which costs are paid by buyer vs. seller, and also doesn’t allow for borrowers to fully take advantage of any large seller credits they might negotiate during a home purchase transaction. These are just two examples of unintended negative consequences for consumers with the new disclosures. The new Good Faith Estimate is quite a bit less clear than the old one, and the new rules that go along with it punish the consumer for certain common elements of a transaction such as negotiating seller credits.

Currently, the Federal Reserve Board is engaged in a comprehensive revision of the mortgage disclosures required under the Truth in Lending Act to improve the effectiveness of mortgage disclosure forms for all loans. These new forms were developed through consumer testing, including focus groups and detailed surveys, to ensure that they provide information that is useful and understandable to consumers. These disclosures are designed to better focus consumer attention on mortgage features, such as variable rates, that might be appropriate for some consumers, but potentially risky for others. And we have proposed to ban compensation methods that give originators incentives to steer borrowers to loans with higher rates or disadvantageous terms.