Tess Vigeland: Alright so what do we know about what the bureau will and won’t be able to do when it hangs out the open for business sign in a few days? Mike Calhoun heads up the Center for Responsible Lending. From that title, you’ll no doubt gather that he is fully in favor of this agency. So with that said, he’s here to tell us exactly what to expect. Thanks for joining us.
Mike Calhoun: Thank you for having me.
Vigeland: Let’s start with, say, the top things that the Consumer Financial Protection Bureau is mandated to do.
Calhoun: The Consumer Bureau will be addressing pretty much all the aspects of the mortgage. This will cover everything from how the loans are sold, how the people who sell the loans are incented and paid for those loans to the disclosures borrowers get and to the substantive terms of the loans themselves. It’ll be both efforts to improve disclosures, but also to put in place baseline substantive protections to help people get more sustainable mortgages.
Vigeland: And what about beyond mortgages?
Calhoun: The Consumer Bureau also has important responsibilities to look at everything from credit cards, car loans, consumer finance loans — all the ways that financial products hit individual households throughout their lives.
Vigeland: Then let’s talk about how far they are into this actually becoming a reality. It’s been a year since Dodd-Frank was passed. How much of the bureau is set up and ready to do all these things that you just talked about?
Calhoun: Well, setting up a new agency and transferring people from other agencies is a significant undertaking. They’ve made a lot of progress and the doors will open on July 21. They will begin mostly with supervision of financial services providers — banks in particular — to look at what their practices are and make sure they’re following the law. And also looking to see where there are problems, where there are consumers and families getting products that aren’t clear or really have hidden tricks and traps. As has been discussed by many, there are challenges in that the bureau does not have a director at this point.
Calhoun: Elizabeth Warren has been acting as a special advisor to the president, but not in a specific, nominated or confirmed position to this point.
Vigeland: I want to get back to the folks we heard in Jeff’s piece a moment ago, who basically have a couple of concerns: The borrower is skeptical and the lawyer is not confident that anything is going to change, because, still, nothing is written in stone. Are those concerns justified?
Calhoun: The concerns are justified, but those protections some of them are already in place and others are rapidly being put into place. Now there’s some push back, trying to slow down the bureau and keep it from moving forward. But I expect that in particular in the mortgage area, I think because of the central role that mortgages played in the financial crisis. There’s more agreement that reforms are needed in the mortgage industry, and we’re well down the road in getting those in place. And they’ll make a big difference, not just for home buyers, but all property owners. If you have a foreclosure down the street, that hurts you whether you’ve got a mortgage or not. It pushes down your property value. And as we’ve found out, tanking the housing industry has been devastating for the whole economy, and if we’re going to turn around the overall economy, I think there has to be improvement in the housing market.
Vigeland: You are the president of the Center for Responsible Lending. But I wonder about a Center for Responsible Borrowers. I mean, as much as lending got out of hand, so did borrowing. Any thoughts on how to address that part of the equation?
Calhoun: Yes, borrowers even with additional protections still bear responsibility to watch out for their interests. And one the major goals of the Consumer Bureau and one of the things that they initially focused on is how to turn the maze of fine print and legalese into some plain, short simple English where people understand better what they’re getting in a financial product. So for example, the home buyer that thought they were getting a 30-year fixed loan. And it’s hard to sort out that you’re not getting that when you get a couple inches of paper at the closing table. So one of the first things that the bureau has done is come up with a simple, short disclosure that gives people those basic pieces of information: “This is the kind of loan you’re getting. Your mortgage payment could go up this much. Your loan does not have you paying the full amount.” So that by looking at this short form, you get a warning. You’re not gonna understand all the fine print, you need a Ph.D and an MBA and probably a law degree to do that, but you can get the critical warnings about “is this loan a sustainable loan and one that’s suited for you?” And if not, at least it’ll trigger the home owner to ask questions and the home owner needs to ask questions at that point.
Vigeland: Mike Calhoun is president of the Center for Responsible Lending in Washington. Thank you so much.
Calhoun: Thank you for having me on today.
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