The financial reform bill signed into law by President Obama may look like a giant cornucopia of helpful changes for home buyers and loan applicants, not the least of which will be the creation of a powerful Consumer Financial Protection Bureau to ride herd on the mortgage lending industry.
But how soon will anyone see hard, tangible results of the law? When will the bureau begin writing new rules and cracking down on problems and abuses in areas such as home real estate settlements, credit scores, "truth in lending" and equal credit opportunity?
At the moment it looks as if it will be a while, even if the president nominates a director for the consumer protection bureau quickly and the Senate confirms her or him without partisan bloodletting or a filibuster. On the other hand, mortgage industry leaders say some of the core changes promised by the legislation are either already in effect — such as stricter underwriting and documentation practices — or should be soon.
Here's a quick overview of what to expect and when.
The reform law contains deadlines for action, but they may not be as immediate as some consumers would prefer. Treasury Secretary Timothy F. Geithner is carrying the ball, and he has had a team at work for weeks drafting the basic structure of the new consumer bureau, which will eventually be housed inside the Federal Reserve.
Under the law, Geithner has a deadline of Sept. 19 to designate a "transfer date" when key legal and regulatory authorities shift from such agencies as the Federal Trade Commission, the Department of Housing and Urban Development and the Fed to the new consumer bureau. In effect, that will be the date the bureau, with initial funding projected at $500 million a year, springs to life with a staff and full set of teeth. By law it must be no earlier than next Jan. 17 and no later than Jan. 21, 2012.
At a White House briefing, Deputy Treasury Secretary Neal Wolin asked for understanding about the huge task ahead of creating an agency that must take over responsibility for consumer protection statutes on the books for decades.
"This will take some time," he said, "but it's worth it."
Consumer advocates say they get Wolin's point but still expect the White House to move the new agency into functional shape fast. Travis Plunkett, legislative director for the Consumer Federation of America, said, "Yes, they need to do this right. But the sooner they can get the doors open, the sooner the public will feel the tangible benefits."
What sort of tangible benefits might begin to flow once the bureau takes official form? One of the earliest and most widely anticipated changes in the real estate field will involve appraisals on homes. The law requires the agency to quickly come up with new interim rules on appraisal accuracy and independence designed to replace the controversial "Home Valuation Code of Conduct" rules imposed by Fannie Mae and Freddie Mac in 2009.
That alone should bring relief to buyers, sellers, realty agents and builders who have complained about inept, deal-breaking appraisals fostered by the code. In a companion move, the reform law also sets standards for appraisal management companies that function as third-party vendors for many lenders, and who have been criticized for assigning valuations to inexperienced appraisers who are unfamiliar with local conditions and willing to work for low fees.
Another early tangible benefit: A national hotline system that will allow aggrieved mortgage borrowers and others to lodge complaints and alert the bureau to unfair and deceptive practices.
The new agency will also assume control of a key consumer protection statute — the Real Estate Settlement Procedures Act — that seeks to prevent under-the-table kickbacks and padded fees by lenders, title companies, realty agents and builders. RESPA governs the "good-faith estimates" or transaction cost disclosures that millions of borrowers receive at application, as well as the standard closing form known as the HUD -1.
Among the early projects expected from the new bureau will be a rewrite and streamlining of the existing home purchase disclosures and a tie-in with a revised truth-in-lending disclosure, possibly all wrapped up in a single plain-language package.
Also high on the to-do list: Rules requiring all loan officers to verify that mortgage applicants possess the ability to repay the loans they're seeking. This may sound pretty basic, but it was an alien concept inside some mortgage companies during the heyday of the boom.
Not only did loan officers not worry about who could afford what, there was no federal watchdog on the scene to make sure they did. Now there will be.
Distributed by Washington Post Writers Group.