Lawmakers, lenders, and consumer advocates agreed Wednesday that mortgage disclosures are confusing and ineffective but clashed over how to solve the problem.
"Regulation in this area has turned into a minefield," said Sen. Lauch Faircloth, R-N.C., and chairman of Senate Banking's financial institutions subcommittee. "The risk of lawsuits and criminal sanctions has discouraged competitors from bringing innovative products to market."
To provide time to reform the Real Estate Settlement Procedures and Truth-in-Lending acts, industry officials urged lawmakers to impose a nine- month moratorium on mortgage disclosure lawsuits.
"We are here to ask Congress for a time-out from piecemeal legislation and from class-action lawsuits in the courts," said Mortgage Bankers Association of America president Ron J. McCord, who noted that lenders have been hit recently with a series of suits charging that yield spread premiums are illegal kickbacks under Respa.
But consumer advocates objected, charging that a moratorium would strip customers of their only redress against unscrupulous lenders.
"We strongly oppose congressional action on this issue," said Margot Saunders, managing attorney for the National Consumer Law Center. "There is no reason why the judicial system should not be allowed to move forward."
Lawmakers did not weigh in on the moratorium request, but seemed eager to simplify the disclosure laws. "Something needs to be done with this paperwork," said Sen. Wayne Allard, R-Colo. "I don't see consumers taking the time to read this stuff."
Sen. John F. Kerry, D-Mass., suggested making it easier for consumers to shop for loans by requiring disclosures early in the application process. "Consumers ought to be given the maximum amount of information as soon as possible," he said. "In my mind, that is before you pay an application fee."
However, Sen. Carol Moseley-Braun, D-Ill., said lenders could reduce the amount of paper consumers must contend with at closing by standardizing and simplifying documents not required under Respa or Truth-in-Lending.
Jan Hix, president of the National Association of Mortgage Brokers, argued for dropping the annual percentage rate calculation because people do not understand how it differs from the simple interest rate.
Also, Ms. Saunders urged lawmakers to adopt a suitability rule, which would prevent lenders from extending credit to people who could not afford to repay.
Federal Reserve Board officials have been working on a proposed rewrite of the mortgage disclosure rules for several months. Fed Governor Laurence H. Meyer is scheduled to testify before the subcommittee Tuesday with Department of Housing and Urban Development Assistant Secretary Nicolas Retsinas.