Paulson pushes one-page disclosure

We told you last night Treasury Secretary Paulson was going to do some jawboning today, and here it is -- a speech taking the mortgage industry to task in remarkably blunt language.

We were particularly struck by his call for better disclosure: "We need simple, clear, and understandable mortgage disclosure. We must identify what information is most critical for borrowers to have so that they can make informed decisions. At closing, homebuyers get writer's cramp from initialing pages and pages of unintelligible and mostly unread boilerplate that appears to be designed to insulate the originator or lender from liability rather than to provide useful information to the borrower. We can and must do better.

"The most critical facts, including potential future monthly payments, should be on a single page in clear, easy-to-understand language, to be signed by the borrower and the lender. In my judgment, this may have prevented many of the problems that we are seeing today."

Our take: Better disclosure is a no-brainer, but the mortgage lobby is powerful, and has many friends in both parties. We will be surprised -- pleasantly surprised -- if Paulson's suggestion becomes law.

Your thoughts? Comments? Email story tips to lalandblog@yahoo.com.
Photo Credit: Treasury.gov

Comments

[Rob]

Looks like we are tiptoeing thought the tulips trying not to step on the industries toes. At least not to cause any pain: "Uh, excuse me sir could you, umm, could you please reduce the front end paperwork so we could look like were trying be in charge. Pleeaase.

What a waste of time. My time. I don’t know about you, but I am seeing the froth forming at the top of the kettle. I need a spoon.

[MyLessThanPrimeBeef]

While he's at it, can he make electronic product manufacturers print their instruction manuals in English only?

I usually waste half of my time being distracted by the German, Franch and Spanish sections.

[l.a. guy]

They can pattern it after the nutrition guideline packaging:

This loan contains:
Principle: $100,000
Fat: $125,000

[peter c]

I support just about anything that allows consumers to make informed decisions, and the proposed summary is a step in the right direction. However, I doubt that the current housing situation is a result of people signing a stack of loan documents with guns pointed at their heads. I think most consumers knew exactly what they were getting into, and if they didn't, shame on them for not asking more questions about the terms of their loan. If the argument is that this 1-page summary will expose aggressive or unethical lenders, then I understand, but not sure how much this will affect the overall housing market, demand for loans, etc.

I'm not trying to be elitist. I agree that an making an offer on a house and loan docs are full of fine print and legalese. But it does underscore the importance of working with people whom you trust, comparing notes with your friends, and doing your homework. This is an activity for grown-ups!

[speedlet]

Quick, Hank. Close the barn door. The horses are already gone.

[brettdl]

While I agree the whole process needs to be improved, I also think that it is somewhat irrelevant as to what happened in this housing cycle. People were determined to buy beyond their means no matter what.

And it started long before the words "subprime" was part of the lexicon. A culture of "me too" was egging everyone into buying more than they could afford.

This applies as much to the upper middle class as the lower echelons. I had conversations with dozens of friends, family and co-workers warning them of what was about to happen and all I did was alienate them.

Emotional desire, competition with the Jonses and HGTV overwhelmed everyone's ability to do math. Actually, I think most people did know what they were getting into, but just blocked it from their minds -- a sort of mass delusion.

This crisis was going to happen one way or another.

[mike]

why put the loan docs in plain english????????????who in california speaks plain and simple english anymore? ha ha...just trying to put a funny twist on a big problem.

do any cute real estate girls ever talk on this blog?

[Jax]

Boo hoo! These poor buyers who have been led down the primrose path by the evil wolves who work in the mortgage industry. I suspect that only a very small percentage were misled about what they were signing when they applied for these stupid mortgages. They rolled the dice because they thought they would make a bunch of money on their constantly appreciating home and easily refinance again at 100% when the payment went up in a couple of years. That's not the fault of the mortgage industry. (No, I have never worked in the mortgage industry so I'm not protecting my own here). The purpose of the mortgage industry was to make loans to people. The mortgage industry didn't make the underwriting rules..........they were set by the people who actually funded the mortgages. These were adults and they are responsible for their actions. If they had made money on these homes, you wouldn't be hearing this outcry, would you? Wall street generated the vehicles to finance these loans with the blessing of the federal government so it's absolutely ludicrous for an official from the government to be pointing a finger at the mortgage industry as the root cause of this problem.

[Roger Herrick]

HUD determines ultimately what is necessary. They have not changed much since 1974. All that they have done is to add additional paperwork. It would be nice if they would scale back and produce a comprehensive disclosure. This take leadership and coordination of various state and federal departments. Leaderhip and coordination is hard to obtain in government.

[Karen]

I'm confused - isn't that what the Truth In Lending disclosure already is? I remember from every loan I've ever signed (including two mortages) and it clearly states, on one page, what the annual percentage rate is, the finance charge, the amount financed, the total of payments, and the number of payments and $ amount of payments and when they are due. Look at this sample PDF http://www.dignitymortgage.com/ApplyRes/
A-TiLDisclosure-example.pdf

don't we already have what is being talked about?? I think people just weren't paying any #(*%&*#$ attention, and they figured they could just sell or refi before the resets and payment increases happened.

[Cal]

Oh a piece of paper, that was what was missing in the closing process another piece of paper.

We are saved.

[BottomFisher]

Hello new loan buyer. This is our one page disclosure as required. Please refer to attached 73 pages for other details about about your new loan. Thank You.
Tan Man

[Rich]

For all of you who don't think this kind of thing is possible I want to point out that I recently had occasion to sign offering documents with a local realtor and, upon reading the package, was amazed at how plain and direct the packet was. It explained the various levels of representation, admonished the buyer to consider whether they needed their own representative, and even made clear that the realtor was not going to function as an exclusive agent of the seller, a point I found so amazing that I had to ask the realtor (who at that point was the seller's representative) about it. She said it was the standard offering documents being used by members of her local unit (the Hartford County, Connecticut Board of Realtors). A package I saw from another seller's agent in a nearby county was similarly direct. It wasn't dead simple, because there were so many specific scenarios that have to be covered, but was about as good as it gets. So my hat is off to those who have seen the wisdom of making it plain for the customer and hopefully their attitude will spread throughout the industry...