Sunday Morning: The Do-Nothing, Know-Nothing Congress, Outsmarted by Mortgage Brokers

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In general, this blog isn’t very interested in politics. But from time to time the politicians leave us no other option but to wade in, and so here we go. When it comes to understanding the changes in the mortgage industry and updating federal laws to keep pace, Congress appears to be just as lost as the most clueless of borrowers, according to Lew Sichelman’s column today in The Los Angeles Times.

Read on: Your Blogger bloviates about Congressional inaction, and how you can easily prove him wrong.

The issue here is disclosure: requiring short, simple, clear explanations for today’s mortgage products, which are long, complicated -- and let’s face it, in many cases designed to mislead the borrower. The laws on disclosure date from the late 1960s and early 1970s, and Congress has failed to update them. The result is that millions of Americans take out mortgages they do not understand, and when foreclosures rise, Congress is shocked -- shocked!

Let’s also understand that a chunk of Congress doesn’t really understand the issue, and another large chunk does not want better disclosure -- they prefer a market in which the consumer is uninformed and easily separated from his money. And the industries involved -- the banks, lenders and mortgage brokers -- don’t want clear disclosure either. (If they did, they would start doing it today, or better yet, yesterday, without waiting for Congressional action).

If I’m wrong on this one, it’s easy to prove: Send me the one-page disclosure form that your favorite, consumer-friendly mortgage lender or broker uses. The one that explains the bonus being paid to the broker for putting you in a slightly higher-interest loan. The one that explains how high your payments might rise, and the penalties you’ll pay if you refinance. Yes, that one.

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