The Consumer Finance Protection Bureau (“CFPB”) was created in the wake of the 2008 credit crisis. As with many government agencies the theory behind it is valid. Their actions, however, seem designed to protect us from ourselves and our oftentimes willful stupidity.

Case in point is the new “Know Before You Owe” rule. It’s designed to give consumers information (more is needed?…really?!) prior to closing. In practice it’s slowed down the housing market at a time when our tepid economy needs help from housing – not a headwind.

  • Since the new disclosure rules went into effect the average time to close a loan increased from 36 to 41 days forcing borrowers to pay extra loan lock fees to hold particular interest rates.
  • Last week the National Association of Realtors reported sales of existing homes plunged more than 10% in November. The seasonally-adjusted rate of 4,760,000 homes is down 3.8% from this time last year and is the slowest in 19 months.

Fortunately the broken clock theory has kicked in and the CFPB has gotten something right. In a Dec 29th letter to the Mortgage Bankers Association the CFPB’s director (Richard Corday) wrote that small paperwork errors and typos in key sections of the new disclosure rules would not likely create a scenario where a private investor who buys a loan from a bank could sue the lender or, similarly, where the lender would face the regulatory wrath of the CFPB or the federal agencies that buy loans.

“We believe that the risk of private liability to investors is negligible for good-faith formatting errors and the like. We recognize that a certain level of minor errors in the early days of implementation is to be expected.”

Finally in reference to federally-backed loan purchasers Director Corday wrote that Fannie Mae and Freddie Mac, “…are looking, in these early days, for good-faith efforts to come into compliance.”