Why We Need Consumer Protection for Mortgage Borrowers

A few years ago, I went to a Joint Center for Housing Studies sponsored conference at the Harvard Business School. While my memory may be faulty, the broad outlines of the following story are true.

During a discussion for the need for consumer protection, a Harvard Law Professor (it may have been Elizabeth Warren, but I am not sure) asked those in the room with an Adjustable Rate Mortgage to stand up–perhaps half the room did so. The professor then asked how many of those standing could name the index to which their loan rate was tied. Those who didn’t know were asked to sit down, at which point half of the original group remained standing. The next question was about the size of the margin between in the index rate and the loan rate, at which point another half sat down. Finally, those who remained standing were asked if they knew roughly the maximum payment that they could make on their mortgage–only one person remained standing (and the person sitting next to me said, “I know that guy–he would never admit that he didn’t know something in public anyway.”)

So here is the point: a crowd of Harvard, Yale, Michigan, Princeton, etc professors and top policy makers did not fully understand the mortgages they had. How can we expect someone armed only with a high school diploma and no consumer finance training to knowledgeably negotiate the world of mortgages?

I used to cringe at the thought of imposing “suitability standards” on lenders. No more.

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About Richard K. Green 103 Articles

Affiliation: University of Southern California

Richard K. Green, Ph.D., is the Director of the USC Lusk Center for Real Estate. He holds the Lusk Chair in Real Estate and is Professor in the School of Policy, Planning, and Development and the Marshall School of Business at the University of Southern California.

Prior to joining the USC faculty, Dr. Green spent four years as the Oliver T. Carr, Jr., Chair of Real Estate Finance at The George Washington University School of Business. He was Director of the Center for Washington Area Studies and the Center for Real Estate and Urban Studies at that institution. Dr. Green also taught real estate finance and economics courses for 12 years at the University of Wisconsin-Madison, where he was Wangard Faculty Scholar and Chair of Real Estate and Urban Land Economics. He also has been principal economist and director of financial strategy and policy analysis at Freddie Mac.

His research addresses housing markets, housing policy, tax policy, transportation, mortgage finance and urban growth. He is a member of two academic journal editorial boards, and a reviewer for several others.

His work is published in a number of journals including the American Economic Review, Journal of Economic Perspectives, Journal of Real Estate Finance and Economics, Journal of Urban Economics, Land Economics, Regional Science and Urban Economics, Real Estate Economics, Housing Policy Debate, Journal of Housing Economics, and Urban Studies.

His book with Stephen Malpezzi, A Primer on U.S. Housing Markets and Housing Policy, is used at universities throughout the country. His work has been cited or he has been quoted in the New York Times, The Wall Street Journal, The Washington Post, the Christian Science Monitor, the Los Angeles Times, Newsweek and the Economist, as well as other outlets.

Dr. Green earned his Ph.D. and M.S. in economics from the University of Wisconsin-Madison. He earned his A.B. in economics from Harvard University.

Visit: Real Estate and Urban Economics Blog

2 Comments on Why We Need Consumer Protection for Mortgage Borrowers

  1. Hello,

    My sister just completed a nightmare scenario that started with Countrywide six months(yes, 6 months) ago and ended with Bank of America rejecting here loan based on a bogus claim!(She has all the docs)

    She missed the low rates during the winter, could affect her credit and she’s out several hours of work and a $400 appraisal. She has 60% equity, 750 plus credit and good income ratios. Countrywide said “there was a bad zip code on her title report” after 6 months of telling her it’ll close soon!!

    Please help if you can-this is an injustice and I thought we were putting this kind of unethical behavior behind us. Her name: Shelly Johnson (360-513-6666), single mom and had never refi’d before.I’m an educated professional that reviewed her docs and have been through several refinances-what I’m telling you is the truth and we have the docs to back it up!

    Thank you for your time and consideration.

    Steve Johnson (360) 225-6596

  2. While regulation of the mortgage indurstry is crucial, regulations alone will not protect the consumer! The best protection is knowledge! In my book, “Getting To Closing” (www.CherylLPeck.com), I give readers information I gave my clients during my ten years as a mortgage broker. The book is a step-by-step reference guide for the loan application and closing process. No more surprises at closing!

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