The new federal consumer regulator wants to make it easier for borrowers to know what they are getting and what it will cost.
WASHINGTON - Over the next six months, the Consumer Financial Protection Bureau, a newly formed regulator vilified by the right, intends to overhaul the home mortgage market as a first step toward improving its fairness and clarity.
The goal is to remake the process of getting a mortgage, making it easier for borrowers to understand the kind of loan they are getting and its cost.
Such an achievement by the bureau -- a lightning rod for criticism of the Dodd-Frank regulatory law passed by Congress in 2010 -- would help to establish its legitimacy and quiet its critics as it approaches its first birthday this month.
Richard Cordray, a former Ohio attorney general who is the director of the bureau, said he wants to show that the bureau can help consumers without drowning banks in red tape.
"We have an overarching goal here," Cordray said in an interview in his office near the White House, "which is to restore trust in the consumer financial marketplace. I don't think we are just a regulatory body or just an enforcement body."
The mortgage market is at the top of the agenda because "it's the market where consumers have the most at risk and they have the most at stake," Cordray said. "I expect that the mortgage market in the fairly near term will look different in the sense that, first of all, it will be a clearer and more straightforward place for consumers, and second, it will be a more reliable market."
This summer, the consumer bureau plans to propose rules that will address the biggest stumbling blocks buyers face. When shopping for a loan, consumers will get a more complete and understandable "good faith estimate" of the costs.
A single disclosure form
Before closing a sale, consumers will receive a single, revamped disclosure form of the terms -- the interest rate that they will pay, how it could change over the course of the loan and how much cash is needed at closing. And mortgage servicers, the companies that collect the payments, will be required to provide clearer information, better service and options for a borrower facing foreclosure.
Heading toward July 21, its anniversary, the consumer bureau has other goals, like defining which nonbank financial companies will fall under the "larger participant" designation that will make them subject to the bureau's oversight.
And it is scheduled to complete a study of the private student loan market. Last month, Congress approved a one-year extension of subsidized student loan interest rates, which means the issue will probably be the subject of political jockeying next summer.
The bureau also recently released an early version of a database of consumer complaints against credit card companies that will be expanded to include other financial service providers.
"It was an important step, although an imperfect one," said Bartlett Naylor, a financial policy analyst for the consumer group Public Citizen, who said he hopes that the database will make it easier for consumers to learn from others' experiences.
Cordray said that the consumer bureau's activities will soon also reflect another part of its mandate -- enforcement of consumer-protection laws.
"There will be enforcement action this year, and we have quite a bit of activity going on," he said, though he declined to offer specifics.
Jess Sharp, executive director of the Chamber of Commerce's Center for Capital Markets Competitiveness, said the bureau needs to be clearer about how it will enforce its rules -- beginning with, for example, defining "abusive," a term included in the Dodd-Frank law but which is new in consumer protection law.
Objections from GOP
On Capitol Hill, the agency will probably face resistance from Republicans who dislike the creation of a government agency that they say lacks accountability. They want to change the bureau to a five-person commission, subjecting it to greater congressional control.
"After six months, the only definitive conclusion one can reach about the CFPB is that it's a rapidly expanding bureaucracy that is increasing costs on small businesses and remains completely unaccountable to the American people," said Sen. Richard Shelby of Alabama, the ranking Republican on the Senate Banking Committee.
The State National Bank of Big Spring, Texas, has filed a lawsuit in federal court in Washington challenging the constitutionality of the consumer bureau and other aspects of the Dodd-Frank law.
Rep. Randy Neugebauer, R-Texas, who is the chairman of the House Financial Services oversight subcommittee and in whose district the Big Spring bank resides, said the bureau's formation was "a typical Washington response."
One of the agencies that clearly did not do its job was the Office of Thrift Supervision, a savings and loan regulator that was phased out. The consumer bureau has literally taken the place of the savings and loan regulators, moving into their offices.
But Cordray said he is confident that the consumer bureau will not suffer the same fate.
"If there are efforts made, whether in the near term or the long term, to cut back this agency, our best argument will be for us to show the work we are doing," he said. "And I think we will show ourselves to be quite helpful to consumers."