Timothy Geithner and his new special advisor, Elizabeth Warren, pledged today to simplify and clarify mortgage documents borrower’s face when getting a loan. Geithner:
“Disclosure isn’t going to solve all problems, but it is one of the most powerful tools we have for getting people better information so they can make better choices about how they borrow,” Geithner, 49, said at a Treasury forum today. The goal is to “figure out how to, starting with mortgages, bring a little more simplicity and clarity to the existing forms that are out there,” he said. (From Bloomberg)
I suppose Geithner is unaware of the RESPA (Real Estate Settlement Procedures Act) regulations already in place that impose disclosure requirements on the process of getting a mortgage. There is the Truth-in-Lending Statement, the Settlement Statement, the Good Faith Estimate of Closing Costs, etc.–all of which have been expanded and clarified with the demise of the residential real estate market.
Hint to Mr. Secretary and his special advisor: It weren’t the lack of disclosures that caused people to do stupid things like agree to a 5/1 Negative Amortization Option Arm. It was the people’s stupidity. You could have told them that by signing the documents they would be subject to public floggings if they failed to pay. It wouldn’t have mattered. They were making a leveraged bet that housing prices would continue to go up, just like the banks that lent them the money.
Borrowers had abandoned any consideration of restraint and humility in the face of a necessarily uncertain future. Winter had been banished (see previous post). They were simply trying to get rich quick. That it all blew up in their face had virtually nothing to do with whether a quarter-point difference on the Truth-in-Lending statement had been properly disclosed three days prior to closing. Trust me. I did the closings. I saw the people. Their eyes glazed over when I tried to explain their documents. “Where do I sign?” That’s all they wanted to know.