The more things change, the more they stay the same. We truly have learned nothing from the worst financial crisis in 70 years. The same folks who brought us all sorts of ‘financial innovation’ – many of which even the head of Goldman Sachs (NYSE:GS) claimed had no social value – are resisting any form of simplification to the mortgage process. Because it will stifle innovation.
I am unclear why a mortgage document needs to be ‘innovative’. I think 98% of the people would prefer a 1-2 page document with simple terms in 12 point font. In return for such a reward, I think they’d be happy to give up any ‘innovation’ the banking industry has in store for us in the future. As Paul Volcker said, the only positive innovation from the banking industry the past few decades has been the ATM machine.
Here is the story from Bloomberg – the majority of the piece shows why changing anything in this country is so difficult. Both sides (consumer groups & banking (XLF) industry) are attacking Elizabeth Warren, citing the potential for lawsuits – or lack thereof – under the proposed changes. Ah… lawyers…..
- For Elizabeth, the Obama administration adviser setting up the Consumer Financial Protection Bureau, simpler mortgage paperwork is a “regulatory sweet spot” that will cut lender costs and borrower confusion. (sounds appealing…tell me more)
- That view hasn’t stopped battle lines from forming around the prototype “mortgage shopping sheet” the agency is planning to publish today.
- Industry groups say the revisions may lead to limits on innovation and variety in lending, while consumer advocates are resisting changes that might limit borrowers’ right to sue to stop a foreclosure. (doh!)
- Warren has said the goal is to have a document that succinctly shows the costs of a loan and gets to borrowers early enough to allow for comparison shopping. (what a concept! but please I don’t want to have these benefits, if I lose out on ‘innovation’)
- “The papers come too late and are too complicated to be helpful to consumers,” she told the House Financial Services Committee at a March 16 hearing in comments about the current system. “By the time they see most of the papers, they are at the closing table being told ‘sign here, sign here.’” (amen)
- “It’s not clear to me if disclosure is about simplifying the documents or simplifying the product,” Bob Davis, executive vice president at the American Bankers Association, said in an interview. “If you simplify the product, you stifle innovation.”
- Warren’s plan could affect “everyone throughout the chain” of home finance, from title firms and loan originators to risk-hedging systems, said Stevens. The changes “could involve lawyers and create a class-action nightmare,” he said.
- Warren explicitly touted regulatory simplification as a way to cut down on litigation during a question-and-answer session after a March 30 address to the U.S. Chamber of Commerce in Washington. The complexity of rules “produces people who allegedly do not comply and therefore the opportunity for a lawsuit,” she said.
This is a guest post written by Trader Mark who runs the blog Fund My Mutual Fund.
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