The root of all evil
Is the love of money the root of all evil, as Jesus said, and, if so, how has that played into the country’s real estate meltdown? We may never know for sure but what we do know is a lot of people made a lot of bad decisions, and money was definitely at the root of it.
During the overinflated bubble days of real estate, burrowers were stretching to buy homes assuming they would be making more money in the future and that housing prices would be going up. It seems like everyone was caught up in the frenzy. As it turned out, not only did a good portion of these buyers not make more money, millions of them lost their jobs entirely, and, of course, housing values followed right along.
Now that we’re where we are, the question is, how much of the blame rests with naïve buyers who didn’t understand the responsibility they were undertaking, and how much was actual malfeasance on the part of those in the financial industry?
In an attempt to address this issue, the federal government passed the Consumer Protection Act of 2010 on July 15, containing the most sweeping financial restrictions since the Great Depression. As part of this legislation, the government has created a new Consumer Financial Protection Bureau. One of the primary responsibilities of this agency is to distinguish between malfeasance on the part of financial institutions and consumer failings, a mandate that won’t be easy to regulate.
Its goal will be to help people understand their financial choices with less ambiguity and be better aware of the impact of any purchases or financial decisions they make. Hopefully, this will result in consumers being more informed and better educated about their financial decisions so they can make wiser decisions.
The Bureau of Consumer Financial Protection will operate under the auspices of the Federal Reserve and should be up and running by the end of 2011. It’s objective is to provide financial services and education to consumers placing some controls on products like deposits, credit extensions and loan services, property leases and purchases, real estate settlements, check cashing, online banking, financial advisory services, credit reports and debt collection. Initially, consumers will notice that financial contracts will become easier to understand and the elimination of hidden fees previously buried in the fine print.
The bill also creates an Office of Financial Literacy and an Office of Financial Protection for Older Americans, and gives Congress the right to break up corrupt banks and other financial institutions.
What if any impact these new regulations will have on the country’s real estate market is at this point impossible to know. Hopefully, the next time you go to a closing table for a property purchase or refinance an existing mortgage, the papers put in front of you will look less like something out of a law school text book. However, since the federal government will have a hand in preparing these papers, my hopes may be dashed. A clearer explanation of fees would be nice, but when you have multiple fees associated with a mortgage closing, seeing all those numbers on a legal-size piece of paper will still be confusing for most buyers.
The downside of tighter government regulation could easily result in tighter lender regulations relative to buyer qualifications and property appraisals. Not to mention lenders building in additional fees to cover their costs to adhere to government mandates, which will, of course, have to be disclosed under the new legislation.
Money may be the root of all evil, but being uneducated about finance is without a doubt the root of bad decision making. Make sure to read the fine print, assuming there will be any left to read..