introduced by Senators Jack Reed (D-RI) and Bill Hagerty (R-TN) and Representatives John Rose (R-TN) and Ritchie Torres (D-NY). If enacted, this pro-consumer legislation would curb the abusive use of mortgage credit “trigger leads” to all but a very limited set of circumstances. Trigger leads happen when consumers apply for a mortgage, and the lender puts in an inquiry to a credit reporting agency to pull their credit. Under the Fair Credit Reporting Act, credit reporting acts are currently allowed to resell consumer information to prospective creditors, if they are ready to make consumers a “firm order of credit.” As a result, though, many consumers have been inundated with hundreds of phone calls, texts, and mails, just moments after they applied for a mortgage: adding confusion and stress during an already very stressful time. This law would stop this practice, allowing credit reporting agencies to pass on consumer information only in a very limited set of circumstances, in cases where potential lenders already have a firm relationship with the consumer (for instance, as their current bank or credit union where they hold deposits).

The post CFA Joins Coalition of Financial Services Industry and Advocates to Express Strong Support to Curbing in Mortgage Credit “Trigger Leads” appeared first on Consumer Federation of America.

The nonprofit, nonpartisan consumer organizations issued the following statements:

Birny Birnbaum, Executive Director of the Center for Economic Justice, said:

 “Reforming the title insurance industry is an essential component of addressing home buying and homeownership affordability.  Iowa is the only state that has created a low-cost alternative to title insurance.  While a few states have made some efforts to address the anti-competitive practices in title insurance, state insurance regulators have failed to rein in excessive title insurance premiums.  We’re hopeful that these new federal initiatives will jump start action at both the federal and state level.”

Douglas Heller, Director of Insurance for Consumer Federation of America said:

 “The title insurance market has been broken for decades, and homeowners and new homebuyers have paid the price. At the moment when consumers are finalizing a consequential financial decisions – buying or refinancing a home – they are forced to purchase title insurance to protect the lender in a market built on kickbacks to the agents who direct consumers toward an overpriced title insurance policy. The insurance industry and the agents who steer consumers to these insurance companies have lobbied relentlessly to block reforms that would create substantial savings for consumers, so we are very encouraged that the President is shining a light on this broken system.”

Sharon Cornelissen, CFA’s Director of Housing said:

 “It is encouraging to see the White House look at potential reforms of the title insurance industry. Unnecessarily expensive title insurance has added to the upfront costs of buying a home, creating barriers for first-time homebuyers. Excessive costs like this have no place in a housing market that is facing its worst affordability crisis in decades.”

As a background on problems in the title insurance market, the consumer groups highlight CFA’s 2013 testimony to the New York Department of Financial Services and Birny Birnbaum’s 2005 Analysis of Competition in the California Title Insurance and Escrow Industry.

The post Consumer Groups Applaud President Biden’s Announcement of Steps to Address Homebuying Closing Costs and Excessive Title Insurance Charges appeared first on Consumer Federation of America.

The FHLBank system was founded in the 1930s to help address the acute housing crisis during the Great Depression and its members today include banks, credit unions, insurance companies and community development financial institutions. Unfortunately, it has since evolved to focus on best serving the financial interests of its members rather than on addressing the dire housing needs of our country.

One reason that the FHLBank system has long evaded critical scrutiny (it was last reformed in 1989), is that it has historically kept a low-profile. The operations of this system are often shrouded in technical language and limited public data is available on its financial workings. This blog answers some commonly asked questions, to help people better understand what is at stake and why the Federal Home Loan Bank system demands reform.

How do FHLBanks make money?

This seems like a simple question, but FHLBanks have not been forthcoming about their financial model. Researchers at the Coalition of FHLBank Reform collected data for all 11 regional banks and made available financial information on the system. We found that FHLBanks operate on a very simple business model: they make their money by making loans (advances) to their members and through returns on their short- and long-term investments.

As a government-sponsored enterprise (GSE), the FHLBanks can borrow cheaply in the global capital market: investors see very low risk, knowing that the US government will stand for FHLBanks debt in case of default. This is also called an “implied guarantee” and translates to an estimated 40 basis points (0.4%) discount on FHLBank-issued debt (close to what the Treasury itself pays for its debt). FHLBanks pass this discount on to their members, by offering them discounted advances. Members, who include commercial banks and insurance companies, must purchase FHLBank stock and post collateral when they borrow.  They can use these below-market-rate loans for any business purposes they see fit. This often results in higher profits for the member but does little to support affordable housing.

FHLBanks also make money by investing their member stock capital plus earnings they have retained over the years into short-term and long-term investments. Indeed, 2023 will likely be the most profitable year for FHLBanks on record, with a projected $7 billion annual earnings, shaped in part by the high-interest rate environment.

What does it mean that FHLBanks are a government-sponsored enterprise (GSE)?

GSEs are congressionally chartered and privately owned institutions that are founded to fulfill a public mission. Fannie Mae and Freddie Mac are also GSEs although much larger and under much more scrutiny.  These latter two GSEs are also different as they have been under conservatorship since 2008 and remain under direct control of the US government. GSEs are backed by the financial strength of the US government, even though their (potential) costs do not directly show up on the government’s balance sheet. In addition to their implicit guarantee which enables them to raise funds very cheaply, they are tax exempt.

FHLBanks are very focused on their fiduciary responsibilities to their member stockholders (who get cheap funding and high dividends) but they largely ignore their duty to serve the broader economic needs of the country. Mission-driven business is at the center of FHLBank reform. There is no reason why FHLBanks should exist as vehicles to funnel government subsidies to buttress the profits of banks and insurance companies.

What are FHLBanks currently doing to help alleviate our nation’s housing crisis?

Many of FHLBank members, including commercial banks, are not even in the mortgage business anymore, despite benefiting from Home Loan Bank advances. A recent Bloomberg investigation found that 42 percent of FHLBanks’ 6,400 members had not originated one single mortgage in the last five years. Currently, while larger bank members face minimal requirements to support housing, many members, including some of the largest insurance companies in America, face no test at all. There is no ongoing membership test to assess whether financial institutions indeed use their membership to advance affordable housing and community development goals.

Members do post housing-related collateral to secure cheap advances from the FHLBanks, most notably residential and commercial mortgages and mortgage-backed securities (MBS) – which are packages of mortgage bundled and sold on the secondary market. One could make the argument that members’ need for housing-related collateral could drive up members’ demand for mortgages and MBS, and so may drive down mortgage costs for consumers downstream. But this pathway is indirect at best. Even without FHLBanks, and with the strong foundation of Fannie Mae and Freddie Mac alongside Dodd-Frank regulations, the market for mortgages loans is many multiples of FHLB collateral and there is widespread, global interest in buying American mortgage-backed securities as an investment instrument. This minimal FHLBank “involvement” in housing does not move the needle on mortgage affordability or housing supply.

Finally, since they were last reformed in 1989, FHLBanks are required to allocate 10 percent of their net income every year to affordable housing programs (AHP). The majority of AHP grants are awarded as gap financing for the new construction of affordable, multifamily rental properties, usually Low-Income Housing Tax Credit (LIHTC) projects. AHP also supports downpayment assistance programs. Some of the FHLBanks also engage in “voluntary programs,” which they call affordable housing and community development contributions that exceed the 10 percent minimum that Congress set. We found, however, that these voluntary programs are very small, while being heavily advertised: until just this year most FHLBanks have spent less than 1 percent of their net income “voluntarily” every year – with 2023 generosity undoubtedly the result of increased FHFA and Congressional scrutiny.

How can FHLBanks be reformed to better support affordable housing?

There is unique momentum today to bring this system back to its founding mission of supporting affordable housing and community development. Some of the most promising proposals include:

• Raise the percentage of net income that each FHLBank needs to contribute to Affordable Housing Programs (AHP) every year from 10 percent to at least 20 percent. Historically, FHLBanks have shown that they can sustain themselves profitably with a 30 percent annual deduction from their profits (they did so from 1989 until 2011). An increase to 30 percent in AHP contributions would have led to $1.4 billion dollars in additional funding for affordable housing in 2024, all without requiring Congressional appropriations.
• Renew the FHLBanks mission focus on housing beyond mandatory AHP contributions. This includes a critical examination of membership (and whether it is appropriate for members who no longer originate mortgages to benefit from Home Loan Bank advances). This also means leveraging all the unique strengths and capacities of the FHLBank system towards housing, such as by strengthening Community Development Financial Institution (CDFI) membership and their access to cheap advances for mission-consistent activities. The FHLBanks should apply their role as wholesale banks and their capital market strength to support less expensive funding for affordable housing. Finally, FHLBanks can better leverage their capital investments for mission activities as well, such as by establishing a revolving loan fund, which can help finance affordable housing activities over the long-term.
• Pilot new housing programs through the FHLBank system. As a regional system, the 11 FHLBanks are also uniquely positioned to respond to local financing needs and to develop new pilot programs: especially to provide financing needs that remain underserved, such as through shared equity financing, mortgages for manufactured homes, and small-dollar mortgages. Indeed, FHFA recommended that FHLBanks establish “centers of excellence,” which can help promote best practices across the system. We also recommend that FHLBanks foster even stronger partnerships with the communities they serve, to make sure they serve all communities in their jurisdiction.

The post An Unfulfilled Promise: Affordable Housing and the Federal Home Loan Bank System appeared first on Consumer Federation of America.

Sharon Cornelissen, CFA’s Director of Housing, reacts:

“It is disappointing to see the banking trade associations try to undermine the modernized CRA rule, which was the result of years of interagency collaboration, thousands of public comments and industry input, and a careful consideration of how banking and the challenges of underserved markets look different today than when CRA was passed in 1977.”

The Community Reinvestment Act remains an essential tool to make sure that people in lower-income and historically underserved communities across the United States have access to lending, ranging from a loan to start a small business to a mortgage to buy a home.

Adam Rust, CFA’s Director of Financial Services, reacts:

The CRA was done in an incredibly deliberate manner. It took a decade to get the regulators to consider changes. Critics have no reason to fault the process, as the regulators intentionally aimed to honor all of the expectations of the APA.

Moreover, the new rule is hardly one-sided. The small banks received significant concessions. Even though CRA was meant to address redlining, race is still not considered in exams.

The post CFA Condemns Recent Texas Lawsuit to Vacate New CRA Rules appeared first on Consumer Federation of America.

The report for the third quarter of 2023 provides a simplified presentation of key data points for easy reference, and an overview of the FHLB financial drivers, including:

• A simple business model with one primary line of business (advances).
• Record profits in 2023 driven by higher interest rates and the earnings from the investment of capital.
• Operating costs that may seem efficient, but should be better explained for a business with fewer than 7,000 customers.

The Need for Enhanced Periodic Reporting for Policymakers and the General Public

The FHFA already provides regular reporting on some aspects of the FHLBank System, such as an annual report to Congress. Their recent report, FHLBank System at 100: Focusing on the Future, calls for enhanced reporting. The CFR applauds this recommendation and calls on FHFA to go even farther with the reforms. FHFA could improve FHLB transparency by providing quarterly reporting on each of the Banks and the System as well as making this data easily available to any user.

For comparative purposes, insured depository institutions must file quarterly Call Reports with the FDIC.  FDIC provides detailed reporting on these numbers each quarter through the publication of the Quarterly Banking Profile. The reports are available to the general public for download and further analysis. Additionally, each FHLBank files periodic disclosures to the SEC. Anyone interested in a more comprehensive disclosure must go through the filings individually to compile basic performance information or a comparative analysis within the system. Because each FHLBank takes a somewhat different approach to its disclosures, it is challenging to assess the entire system.

Going forward, the CFR will focus on building an analytical foundation based on key information about the System, all taken from publicly available documents. The CFR will update the data and analysis on a quarterly basis. This work will be posted on the CFR website, helping the general public, media and advocates to hold each FHLB accountable.

Please contact Katie McCann at kmccann@consumerfed.org with all inquiries.

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We support the broader purpose of the Basel III reforms, which is aimed at promoting greater financial security in the banking system, tackling undercapitalization, and reducing outsized risk-taking by larger banks. The Basel Committee articulated its international standards for bank safety and soundness in the wake of the 2008 financial crisis. Member countries committed to implementing these requirements in 2017. The recent 2023 US banking crisis reinforced the need for enhanced capital requirements. The comment letter also highlighted this as the need to reduce “the privatization of gains and the socialization of losses.”

At the same time, our comment recognizes the need to change small parts of the proposal, which would impact mortgage affordability and access for lower-income borrowers and borrowers of color. Indeed, as also argued by the National Fair Housing Alliance, this part of the proposal risks imperiling fair lending access and is based on risk-standards inconsistent with the actual risk associated with the mortgage products often used by these consumers. For example, a large part of the risk of high-LTV products, those with a down payment of under twenty percent, is taken on by mandatory private mortgage insurance (PMI). While we recognize the importance of changing this element of the Basel III proposal, and of protecting lower-income borrowers and borrowers of color, this proposed change does not delegitimize or change the broader need for improved capital standards.

The post CFA Supports Basel III Proposal to Strengthen Capital Standards for Large Banks appeared first on Consumer Federation of America.

Join us to learn about Federal Home Loan Bank reform, and how you and your organization can help!

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What are FHLBanks?

Today, the FHLBank system comprises a system of 11 regional banks that together manage over $1.2 trillion in debt obligations of just over 6,500 members, who include commercial banks, credit unions, and insurance companies. The FHLBanks function as a kind of “bank for banks,” as they give members access to cheap liquidity sources (in the form of discounted loans called “advances”). Their government-sponsored status allows FHLBanks to borrow at near-Treasury rates in the capital markets and pass on that discount to their members. While FHLBank leadership likes to compare their banking system to private sector financial institutions, the FHLBank system is very different in that it is a government-sponsored enterprise (GSE). As such, it receives sizable direct and indirect public subsidies in exchange for fulfilling a public function. The estimated value of this subsidy ranges between $4.7 billion and $6.4 billion dollars a year, as cited in the FHFA report: the bulk of this public subsidy comes from the value of the implicit government guarantee in capital markets, while the FHLBanks also enjoy exemptions from local, State, and federal taxes.

The Evolving Role of FHLBanks in Housing

Despite being founded on a public mission to support housing and receiving sizable public subsidies, the FHLB system has strayed from this founding mission over time. FHLBanks have moved away from helping Americans get housed, to providing liquidity to members without conditions. The FHLBank members and the FHLBanks are enjoying strong profits with little risk, since their advances are covered by collateral and a super senior lien on their members’ assets. But the system is doing relatively little to alleviate our tight housing markets today.

How did this happen? Its membership has significantly evolved. While early members were predominantly savings and loan associations (thrifts) and insurance companies active in the mortgage market, 1989 reform of the FHLBank system opened up membership to commercial banks and credit unions that financed mortgages. But at the same time, housing finance including its main players and sources of mortgage liquidity have significantly evolved – even just over the last decade. Today Fannie Mae, Freddie Mac, and Ginnie Mae dominate the mortgage securitization market and in doing so help inject significant liquidity in the mortgage market. Meanwhile, commercial banks – who are the main users of discounted advances within the FHLB system,  using 58 percent of all advances in 2022 – have largely moved away from the mortgage business over the last decade. As a result, liquidity use by FHLBank members, while supporting members’ profitability, has become disconnected from a focus on addressing unmet housing credit needs.

Key Housing Recommendations in the FHFA Report

The FHFA report offers key recommendations to help the FHLBank system live up to its founding public mission of supporting affordable housing and community development. These reforms would help this system meet the evolved needs and challenges of today’s housing markets. The four most promising reform recommendations to support affordable housing include:

• Issuing a regulation to clearly define the FHLBanks’ mission and mission-consistent activity. This includes linking FHLBank liquidity and housing.
• Helping expand the usefulness and accessibility of FHLBank advances and other services (such as secondary market access) for small community banks, credit unions, and CDFI’s. This includes critically reviewing the highest costs of advances for small CDFI’s, addressing membership barriers, and making sure services are accessible to these smaller institutions. Mission-driven advances and secondary market access can support affordable housing construction and non-traditional mortgage products (such as small-dollar mortgages and Special Purpose Credit Programs).
• A recommendation to Congress to double the required minimum funding for Affordable Housing Programs (AHP). Currently FHLBanks are required to devote at least 10 percent of their annual net earnings to AHP, which often support low-income housing construction. Ten percent is only a drop in the bucket relative to America’s housing needs, though, and relative to the public subsidies and advantages that FHLBanks receive as a GSE. Of note is also that in 2021, only 10 percent went to AHP, while over fifty percent of annual earnings were paid out to member institutions as dividends.
• Ensuring on an ongoing basis that FHLBank members adequately support housing and community development activities (rather than only assessing whether they meet a 10 percent threshold when they become members).

The Consumer Federation of America supports reforms that seek to reconnect FHLBanks back to their founding mission and use their powerful tools to help alleviate housing supply shortages, mortgage unaffordability, and persistent racial inequalities in housing across the country.  CFA Senior Fellow Barry Zigas participated in the first Roundtable convened by FHFA in November, 2022, and some of his recommendations, as well as those of many others who participated in FHFA’s extensive public hearings and outreach, are reflected in this new report.  As a member of the new Coalition for Federal Home Loan Bank Reform, we will publish more blogs that help illuminate potentials for reform from a consumer point of view.

The post Reforming the Federal Home Loan Bank System Can Help Address Our Affordable Housing Crisis: A Reaction to the New FHFA Report appeared first on Consumer Federation of America.

This includes:

• Eliminating the loophole that allows services to avoid mandatory meetings if they do not have a branch office within 200 miles (a ruling that needs modernization considering the growing role of independent mortgage banks (IMBs) in government-lending in particular).
• Providing additional guidance on the procedural standards around how to schedule the meeting, offer borrowers’ sufficient notice, and provide inclusive language access.
• Implementing sufficient quality control, to ensure servicers indeed follow this updated ruling.

The post Groups Encourage HUD to Improve Mandatory Meeting Guidelines for FHA Borrowers in Default appeared first on Consumer Federation of America.

CFA estimates that, under the proposal, roughly 12,649,337 descendants of African-American veterans would be eligible for VA-financing and, as a result, able to access homeownership without making a down payment. The paper goes on to explain how the proposed transfer would disproportionately benefit descendants of African-American veterans based on the nation’s history of using racially discriminatory policies to prevent  those veteran borrowers from accessing the VA home loan benefit and, as a result, accumulate the generational wealth needed to assist their descendants in their efforts to buy a home.

“Historically, racially discriminatory polices supported by the federal government deprived many African-American veterans of the ability to buy homes using their VA home-loan benefit. As a result of those barriers, the current down payment requirement for home financing has especially disadvantaged African-American borrowers due to their lack of transferable generational wealth,” said Mitria Wilson-Spotser, CFA’s Director of Housing Policy and author of the report. “This proposal would rectify that challenge by righting a historical wrong that left so many African-American veterans without the ability to purchase homes and accumulate transferable wealth to leave to their families in the first place.”

The report is available here.

Contact: Mitria Wilson Spotser, 202-387-6121 x1019

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The pandemic laid bare the deep inadequacy of our existing housing support system, especially in California, where a million people are homeless (more than a third of the nation’s unhoused) and more than 5 million households struggle to make rent or pay the mortgage. As have other states, California has had to step up with eviction moratoria and short-term rental aid to keep lower-income families in their homes. The proposed federal aid package is a more rational approach.

The House and Biden administration proposals combine a significant increase in rent subsidies with new investments to build new and protect the existing supply of affordable homes. This is groundbreaking.

Increasing housing funding — particularly direct subsidies that ease crushing financial burdens on low-income renters — is essential, as demonstrated in the Terner Center for Housing Innovation’s 2021 framework titled “Building a Better Ladder of Housing Opportunity in the United States.” Without a larger attack on the fundamental obstacles that prevent the housing supply from expanding and increasing access to high-opportunity neighborhoods, however, we risk merely pumping more money into an already constrained market. This would push up prices further and reinforce historic patterns of racially inequitable development.

The Build Back Better package would make existing programs, such as housing choice vouchers, HOME housing block grant and public housing, more cost-effective.

For instance, the package was to include $4.5 billion to increase housing supply by underwriting efforts by state and local governments to overhaul and reform land use and zoning rules. This would incentivize states and local governments to rewrite or remove the regulatory barriers that have contributed for decades to the acute shortage of housing across the price spectrum. (House negotiators were working on a final bill Sunday.)

Also, $7.5 billion for a new U.S. Housing and Urban Development Department-administered Community Restoration and Revitalization Fund. This would  support community-led projects seeking to stabilize neighborhoods and encourage equitable development. There also is $500 million set aside for community land trusts and shared equity homeownership.

Such discretionary grants and support projects will help overcome the effects of years of housing disinvestment. Coupled with provisions to amend restrictive zoning, this funding could be a powerful tool to reduce housing inequity and increase access to quality homes in good neighborhoods.

The historic $90 billion in renter assistance includes:

— $15 billion for Project Based Rental Assistance to prevent displacement of low-income renters from rapidly gentrifying neighborhoods.

— $500 million for supportive  services to help households that qualify for housing choice vouchers to apply.  Project-based rental subsidies preserve existing homes for extremely low-income residents.

— Housing choice vouchers that could hit the street within 12 months of legislation enactment.

These are exactly the kinds of long-term support programs California desperately needs to leverage the billions of dollars of state funds signed into law earlier this fall. The state funds provide capital to accelerate affordable housing production and convert hotels and commercial buildings to long-term housing for the homeless.

When the political negotiations in Washington focus solely on total numbers, new efforts to underwrite neighborhood housing development and tackle local regulatory obstacles are at risk. Negotiators must not miss the huge opportunity to invest in needed housing. They need to retain the key components of the House and Biden administration proposals. Failing to take an integrated approach to housing needs risks squeezing one part of the economy at the expense of another.

This blog was first published on CalMatters, as an op-ed on October 25, 2021. You can view the original reporting at this link here.

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“This is a critically important move for expanding access to mortgage credit,” said Mitria Wilson-Spotser, Director of Housing Policy for the Consumer Federation of America. “Considering rent will allow more consumers to demonstrate a responsible payment history and, as a result, decrease their risk assessment as part of the home buying process. CFA strongly encourages the agency to adopt the same policy for Fannie Mae’s counterpart, Freddie Mac.”

“Because rent is the single largest monthly payment for many households, timely payment should absolutely be included in underwriting calculations”, said Wilson-Spotser.

The update to Fannie Mae’s underwriting systems is effective immediately. FHFA’s announcement is available here.

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In May of 2021, CFA released a new report by independent researcher Kanav Bhagat entitled, Avoiding COVID-19 Related Foreclosures by Implementing Cost-Effective Mortgage Modifications for Federally-backed Loans, specifically recommending that FHFA drop the loan-to-value ratio restriction to allow borrowers with more equity in their homes the chance to restructure their loans. This will help borrowers weather the economic hardships caused by the pandemic. Under the previous rules, borrowers with more equity in their homes were blocked from seeking payment restructuring.

“The prior rule put borrowers with greater home equity in a tenuous position by forcing them to either sell their homes or risk foreclosure if they were no longer able to afford their existing payments as a result of an economic hardship caused by COVID-19,” said Mitria Wilson-Spotser, Director of Housing Policy at the Consumer Federation of America.“

“Allowing homeowners to receive an interest rate reduction as part of their mortgage modification regardless of their loan-to-value ratio will help families suffering from COVID-19 related financial hardship keep their home. By taking this step, the FHFA and the GSEs will be able to offer more homeowners with a GSE-backed mortgage deeper payment reductions that create affordable monthly payments and avoid foreclosures,” said Kanav Bhagat, author of the paper.

Contact: Mitria Wilson-Spotser, 202-387-6121

The post FHFA Adopts Key Recommendation From CFA Report to Assist Covid-19 Affected Homeowners appeared first on Consumer Federation of America.

Executive Summary

Full Report

The post Avoiding COVID-19 Related Foreclosures appeared first on Consumer Federation of America.

 In its second comment letter, CFA joined with NCLC to challenge the rationale and legality of the CFPB’s proposed regulation. In both letters, CFA noted that it would be essential for the Bureau to maintain the existing minimal consumer protections and criteria contained in its initial proposal should the Agency choose to move forward with finalizing the regulation.

The post CFA Opposes CFPB’s Proposed Mortgage Regulations appeared first on Consumer Federation of America.

The post CFA, NCLC and Prosperity Now Strongly Oppose Proposed CFPB Rule on Qualified Mortgages appeared first on Consumer Federation of America.

• Providing temporary payment relief to homeowners facing a financial hardship due to COVID-19 that interferes with the ability to make mortgage payments, regardless of whether the loan is federally-backed;
• Placing a temporary moratorium on foreclosures and similar actions while a homeowner is in forbearance or seeking post-forbearance repayment arrangements;
• Requiring that all homeowners, regardless of mortgage loan type, be offered an opportunity to resume regular payments, or obtain a more affordable payment where needed, after a temporary payment halt and before any foreclosure begins;
• Requiring that homeowners who are at least 60 days late on their mortgage payments be provided an automatic forbearance;
• Ensuring that all homeowners receive notice of their options if they are facing a COVID-19 hardship, including in-language communications for borrowers with limited English proficiency and information about housing counseling;
• Enacting policies that encourage the mortgage industry to offer broad access to safe and affordable credit; and
• Establishing a mortgage assistance fund to help homeowners who need emergency financial assistance to stay in their homes.

The post Groups Urge Congress to Include Mortgage Protections in the Next COVID-19 Relief Bill appeared first on Consumer Federation of America.

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“Getting the right information to consumers with a website that links to all of the federal government’s relief efforts is a good step forward. It should help reduce confusion among consumers and make it easier for them to get reliable information about their options,” added Zigas.

The website, is hosted by the Consumer Financial Protection Bureau (CFPB) and sponsored by the Bureau, HUD-FHA, and the Federal Housing Finance Agency (FHFA), which oversees Fannie Mae, Freddie Mac, and the Federal Home Loan Bank (FHLB) system.  It provides quick links to specific areas of interest to consumers faced with challenges paying their mortgages or their rent.

CFA had joined 32 other national and state consumer and civil rights organizations on May 4 urging the creation of such a site.  “We are very pleased that the Administration has acted,” said Zigas.

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On March 20, 2020 CFA wrote to the President and Congress urging the adoption of a series of measures to address a wide range of consumer protection issues resulting from the coronavirus. While a few of the priorities identified by CFA were included in the final bill, including some measures related to paid sick leave and mortgage relief, most were not.

“Protecting consumers is not just a matter of economic justice, it is also the best way to protect the economy,” said CFA Executive Director Jack Gillis. “CFA will continue to fight to ensure that these critical measures are adopted. Enabling consumers to stay financially healthy is critical to staying physically healthy.”

“Congress must focus on a more comprehensive package to aid consumers. Many of the measures that are most needed were included in the House COVID-19 response bill, but the Senate failed to include them in their Senate bill. We look forward to working with members to ensure that these critical measures are quickly adopted,” said CFA’s General Counsel and Legislative Director, Rachel Weintraub.

The Good News: the bill did take limited steps, along the lines advocated by CFA, to:

Create a comprehensive national paid sick leave policy. Lack of paid sick leave threatens to nullify hard won gains from social distancing. CFA recommended adoption of a comprehensive national paid sick leave policy that must ensure that all employees (and their employers) and independent contractors, have the economic support they need to provide paid leave. With this bill and the Families First Coronavirus Response Act, Congress has provided up to 80 hours of paid sick leave for employees but there are significant gaps. Employers do not have to provide full pay, businesses with fewer than 50 employees and Federal employees of the executive branch can be exempted.

Protect homeowners and renters from economic hardship. CFA recommended forbearance be provided to economically distressed mortgage buyers and to halt evictions and foreclosures for people impacted by the COVID-19 virus. Congress adopted limited measures to address those concerns. On the plus side – impacted consumers with federally-backed mortgages – Fannie Mae, Freddie Mac, Federal Housing Administration, Veterans Affairs, or Rural Housing loans – can receive payment forbearance for 180 days, renewable for another 180.  Renters living in properties with federally backed mortgages can get rent relief if the owners seek and get forbearance on their loans. Temporary forbearance can be had without documentation or paperwork. On the other hand, the bill doesn’t cover the 15 million loans held in bank portfolios or in private label securities meaning that not all mortgage consumer will be treated the same. Also, there is no clear provision liquidity needed by nonbank servicers who provide the great majority of the FHA, VA and RHS loans through Ginnie Mae.

The bill does less to address other measures advocated by CFA to protect the financial well-being of the most vulnerable Americans. For example:

• The bill provides limited assistance for student borrowers. The CARES Act exempts some, but not all, federal student loan recipients from making payments on those loans for six months, with the interest waived during that period. But borrowers will still need to make up the payments later. Holders of Perkins Loans, FFEL loans held by a bank or other financial institution, and private student loans are not eligible for forbearance. CFA continues to call for all student loan payments to be canceled for the duration of the crisis, with the government making payments on their behalf.

Missing from the bill are the following critical consumer protections:

• The bill does not curtail high-cost lending schemes. CFA had called for new consumer protections against high-cost credit, such as payday loans, refund anticipation loans, and car title pawns, to prevent vulnerable COVID-19 impacted consumers from being trapped in a cycle of debt. The bill failed to address this concern and CFA continues to call for a 36% usury limit on such loans.
• The bill fails to suspend debt collection or place a moratorium on negative credit reporting. The bill does little to protect consumers’ credit records during the crisis. The bill’s provision on credit reporting is actually weaker than the current industry standard for disaster victims.
•  The bill fails to protect against utility shutoffs. CFA will continue to push for a moratorium on all utility shutoffs during the crisis.

• The bill fails to maintain consumers’ access to affordable communications services. At a time when remote communications are more critical than ever, the CARES Act failed to provide broadband subsidies for low-income Americans and failed to require broadband providers to drop data caps, overage fees, and throttling practices for services needed during the crisis. Nor does it take any steps to require big data platforms to promote public interest messaging or to crack down on misleading advertising and price-gouging.
• The bill does nothing for hotel customer and airline passengers while providing extensive financial assistance to corporations. It does not require the airlines to provide refunds or eliminate price-gouging change fees during the crisis. It also fails to address the airline industry’s lack of price transparency. Nor does it condition support for hotel chains on their agreement to honor requests for room and event cancellations without penalty.

The post Now That the Coronavirus Act Has Passed It’s Time to Address Critical Consumer Protection Measures appeared first on Consumer Federation of America.

Our nation’s comprehensive COVID-19 response must include a strong paid sick leave policy and protecting consumers by ensuring affordable access to communications services, preventing utility shutoffs, mortgage foreclosures, student loan defaults, negative credit reporting effects, overpriced insurance, and making sure that airline and hotel customers’ rights are protected in any financial bailout of these industries.

The Consumer Federation of America has identified critical consumer protection issues that must be addressed as part of a comprehensive response to this crisis. Many of these items are focused on protecting those hardest hit by the economic fallout. Doing so is not just a matter of economic justice; it is the best way to stabilize the economy.

CFA and it’s over 250 national, state and local organizations are committed to working with policymakers at all levels to implement a “Comprehensive Consumer Agenda to Address the COVID-19 Crisis”.  For the details behind the following agenda, please see our LINK March 20, 2020 letter to the President and Congress.

A Comprehensive Consumer Agenda to Address COVID-19

1. Create a comprehensive national paid sick leave policy to reduce the spread of the disease. Lack of paid sick leave encourages tens of millions of workers to continue working when they are sick, which can nullify the critically important benefits of social distancing.

2. Protect those hardest hit from economic hardship by:

• Providing forbearance to economically distressed mortgage borrowers. Any homeowner experiencing economic hardship because of the virus must have access to 180 days of forbearance on mortgage payments.
• Halting evictions and foreclosures. There must be a 180 day moratorium on evictions of tenants experiencing economic hardship because of the virus, with support provided to property owners who suffer rental income losses.
• Canceling student loan payments for the duration of the crisis. It is not enough to pause monthly payments, the government must make tax free payments on holder’s behalf so millions of Americans can continue to make progress reducing their student debt as the economy struggles.
• Suspending debt collection. Debt collection activities, including legal proceedings, garnishments, repossessions, and debt selling, must be prohibited during the state of emergency.
• Curtailing high-cost lending schemes: A rate cap of 36% must apply to high-cost credit, such as payday loans, refund anticipation loans, and car title pawns to ensure that vulnerable consumers aren’t trapped by overpriced debt.
• Placing a moratorium on negative credit reporting. To protect consumers’ credit records during the pandemic, there must be, at least, a four month moratorium on negative credit reporting.
• Maintaining consumers’ access to affordable communications services. As remote communications become critically important, service providers must abandon pricing practices that maximize revenues, suspend overcharges for “excess” data usage, terminate service cut-offs, and increase network availability to the public.
• Requiring big data platforms to promote the public interest. Big data platforms must remove misleading information. Their big microphones must promote the public interest, not the corporate bottom lines. Non-commercial pandemic information from public health, safety and governmental entities must be given a prime location on all screens.
• Preventing misleading advertising and price-gouging. Advertisers, and the media carrying ads, must ensure that claims related to the coronavirus are completely accurate. Online marketplaces must reject products and services making misleading claims or that offer basic necessities at unfairly inflated prices.

3. Ensure that consumers’ interests are protected as industries seek federal financial support by:

• Mandating fairness in the skies. Airlines must waive cancelation and change fees for all consumers during the federal state of emergency. As a condition of an airline bailout, Congress must require price transparency, make future fees for cancelations, changing flights, and checking bags proportionate to actual costs, lift state preemption, and provide consumers with private rights of action.
• Accommodate hotel customers. As organizations and individuals heed requests to limit non-essential travel and cancel events, some hotels have continued to charge consumers and organizations. As a condition of a hotel bailout, Congress must require hotels to honor requests for room and event cancelations without penalty and to refund deposits until the federal state of emergency is suspended or travel limit recommendations are lifted. Going forward they must provide full price transparency on charges and extra fees.
• Reduce auto insurance premiums to reflect reduced driving. Insurers should be required to offer discounts to people driving less due to COVID-19.  Miles driven, a key factor in claims costs, will drop dramatically as workers are laid off, switch to telework, or self-isolate. This should be a consumer benefit, not an insurer windfall. See CFA’s letter to Insurance Commissioners.

The post Government Must Protect Consumers’ Health And Pocketbooks During COVID-19 Crisis appeared first on Consumer Federation of America.

The report was based on:

• Study of all 263 agent and broker websites (listed by Google) in four cities.
• Conversations with 200 agents in 20 cities.
• A national survey of over 2,000 representative Americans.
• Review of published research on the subject.

For most major consumer services, it is relatively easy for consumers to access information about prices.  This is not the case for an estimated $100 billion in real estate commissions that are charged home sellers each year. Traditional firms and agents:

• Do not advertise their commissions.
• Do not include information about their commissions on their websites.
• On these websites, rarely mention that commissions are charged.
• In response to general phone inquiries, usually do not provide information about full commission levels during the call.
• In conversations with a prospective home seller, in response to a query about seller costs, usually do not quickly provide information about commission levels (though eventually, nearly all did).

Moreover, the industry restricts the ability of buyers to learn what portion of the commission (“splits”) their buyer agents receive.

“The reluctance of traditional real estate agents and firms to provide information about commission levels helps explain why there is so little price competition in the industry,” noted Stephen Brobeck, a CFA Senior Fellow.  “It also helps explain why most consumers, even recent home buyers and sellers, do not know that nearly all commissions range between five and six percent.”  In a national on-line survey of 2009 representative adult Americans undertaken by Engine Group (formerly ORC International) for CFA, only 32 percent of respondents, and 44 percent of recent home buyers and sellers, knew that a typical commission is five or six percent.

The report also outlines the costs to consumers of this price opaqueness.  In general, agents face little pressure to reduce commissions that represent a relatively large consumer expenditure – usually $15,000 to $18,000 on the sale of a $300,000 home.  Sellers pay this commission but, according to CFA conversations with 200 agents in 20 cities, if the sellers inquire about its level, they are typically informed by listing agents that:

• If the seller offers a commission (“split”) to buyer agents that is below the typical local level (usually 2.5% or 3%), these agents are less likely to show the home.
• Most listing agents (73%) refused to negotiate down their own portion of the commission.

When buyers ask their agents about commissions, they are typically told that the commission is paid by the seller, so buyers do not inquire further.  Moreover, nearly all local Multiple Listing Services (MLSs) restrict buyer access to information about the commission split to the buyer agent.  This lack of information potentially disadvantages buyers in two ways:

• If buyers were able to negotiate down the commission split, sellers would be more willing to lower the sale price of the home (without a loss of net income).
• Buyers who do not have access to information about commission splits are vulnerable to steering by buyer agents away from low-commission properties. This steering has been documented by academic research and was mentioned by a number of agents we interviewed.

The information gathered from the conversations with 200 listing agents supported earlier research that commission levels are highly uniform in most local markets.  A large majority of all the rates quoted by these agents (70%) were for six percent.  Most of the remaining rates quoted (19%) were for five percent.  In local markets, there was even greater rate uniformity.  In five of the 20 areas, all agents quoted a six percent rate.  In ten other areas, seven to nine agents (out of ten) quoted the same rates.

The conversations with listing agents also revealed that only 27 percent said they would be willing to negotiate their rates.  Those agents charging the highest rates in an area were most likely to be willing to negotiate, and vice versa.  A typical response of the industry to inquiries about commission levels is that “they are negotiable.”

The report suggests ways that real estate commissions could become more transparent:

• In initial interviews with listing agents, if more home sellers asked about commission levels and the willingness of agents to negotiate them down.
• In initial interviews with buyer agents, if buyers asked about commission splits and whether they would be shown homes with relatively low splits.
• Consumer groups, journalists, and other third parties provided more information locally about commission levels and their negotiability.
• The U.S. Department of Justice continues to investigate the lack of price competition related to commission splits and then requires remedial action.
• Other MLSs join the Pacific Northwest MLS in permitting brokers to make available to home buyers commission splits offered on individual properties.

“The industry is beginning to feel more pressure from litigators and regulators to increase price competition,” noted CFA’s Brobeck.  “We believe that more visible pricing would not only lower costs for consumers but also increase consumer confidence in agents who play a critical role in most home sales,” he added.

Contact: Stephen Brobeck, sbrobeck@consumerfed.org

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