’ve written about professionalism in the mortgage industry quite a bit over the years. In fact, back in February, 2011 (when these Musings were but a gleam in my eyes) I wrote an article published in the old Real Estate and Mortgage Executive Magazine[1] in which I argued for more professionalism in the mortgage industry in lieu of more and more consumer protection premised on regulations and disclosures.[2] In that article, I analogized the mortgage shopping experience to going to a doctor and being inundated with disclosures instead of just getting sound medical advice from a trained, empathic, and competent professional.
That article’s message was that we should treat the sale of mortgage loans less as the sale of a financial product and more as an individualized consumer interaction where the loan originator provides professional guidance instead of a stack of government-mandated disclosures consumers need to figure out on their own. Clearly, my ideas about professionalism as a better means of consumer protection didn’t go viral, but that doesn’t mean they didn’t have merit.
Moon River
Some people, however, it would seem, don’t trust other people to actually act like professionals (sadly, some mortgage professionals still don’t always act that way). In that regard and speaking of doctors, I don’t know what to make of the following poorly considered proposal designed to minimize racism and ensure fair treatment in medical care: What if doctors wore body cameras? – The Boston Globe. [3] While I can’t say I have ever experienced discrimination in how I was treated by a professional,[4]I can definitely say that I will not go to any doctor who intends to film my annual checkup.[5] Besides, if the complaint is about unfair patient neglect, how will a doctor’s body cam be able show that?[6]
Trusting professionals or the government
National Review columnist and author Jim Geraghty, on the other hand, had a bit more cerebral response to the doctor body cam wearing idea,
“The heart of a lot of problems in our society is that some of us do not trust other Americans to do their jobs with professionalism, care, and good judgment, and yearn for some sort of all-knowing wise government authority to watch over everyone at all times to make sure they’re performing their duties the way they should.”
I’m definitely not one of the people Geraghty is talking about.[7] Still, while I think professionals should be held accountable[8]for acting in the best interests of their clients (including disclosing conflicts), I do not want the government deciding what is best for everyone in how a professional delivers that personalized advice.[9]Even if body cams for doctors might be good for reducing unfairness,[10] I have other priorities for my own interactions with doctors (such as privacy) that I weigh more important than a need to document possible racial disparity in treatment. But if you want to wear a “GoPro” to your doctor visit, knock yourself out.
Addressing professional conflicts of interest
Speaking of professionals being held accountable, lawyers such as myself, need to be wary of potential conflicts of interest in client interactions.[11] [12] For example, if a client asks me to review an agreement with a vendor, I must make sure that my firm doesn’t also represent the vendor. But, if the vendor has separate representation and the conflict is disclosed to both clients at the outset, that kind of potential conflict is often waivable with informed consent (by the clients). In fact, there are times when clients have said they are happy to waive that potential conflict because they know I will be a fair and knowledgeable adversary. Of course, if the two clients end up in litigation (I am not a litigator) that conflict is no longer waivable and they’ll each need to get other counsel to fight each other.
Meanwhile, conflict concerns can also arise in connection with realtor ownership of affiliated title and/or mortgage operations.[13]As long as I have been involved with affiliated business arrangements under RESPA (ABAs),[14]there have been people who claimed that the potential conflict of interest in recommending another settlement service was so great that they sought to prohibit such ownership interests entirely.[15]But, Congress spoke directly to this issue almost 40 years ago when it amended RESPA’s prohibition on illegal kickbacks to expressly permit ABAs with disclosure to the consumer.[16] That simple one-page ABA disclosure tells the consumer that the referring party is going to benefit from the referral and encourages the consumer to shop around.
Nevertheless, a law firm recently blogged guidance to realtors claiming that real estate agent ABA ownership may violate the CFPB’s new policy statement on the definition of “abusive” in connection with unfair, deceptive, and abusive acts and practices (UDAAP).[17] Curiously, that blogged “guidance” failed to even mention RESPA-not once.[18] That seems like an important omission, because while a potential conflict is present when a real estate professional makes a referral to an ABA they own, RESPA allows that to be addressed through disclosure. That is, any federal UDAAP concerns with ownership of ABAs were directly addressed by Congress with the disclosure and compliance obligations of RESPA’s Sec.8 (c)(4) safe harbor.[19] Considering we have had 40 years of legal ABAs legislatively permitted by RESPA, I would think that if CFPB or any other regulator wanted to enforce claims that the ABA disclosure is inadequate to address that potential conflict of interest, a more specific state or federal law will need to be identified than a generalized UDAAP concern arising from a new CFPB interpretation of the word “abusive”.
Crowdsourcing housing policy ideas?
Shifting gears a bit, here’s a trick question. Who is responsible for housing policy in the US? That is, if the housing market is not meeting the needs of consumers, who is to blame and who can fix it? The President? Congress? State and local governments addressing NIMBY issues? HUD? The GSEs and FHFA? The Federal Reserve? Wall Street bankers? The National Association of Realtors? Greedy corporations? The “Market”? Alrighty. Well, here’s a real question that still can’t be answered: What is Federal housing policy today?
David Stevens recently penned an opinion in Housing Wire calling out Biden Administration’s lack of policy and action on housing and, in particular, respecting policies to address the racial homeownership gap and housing supply shortage generally. Last August, I too lamented the lack of housing focused policies when I complained about Biden’s student loan cancellation plan. Well, despite losing on the original student debt cancellation plan at SCOTUS a few weeks ago, it looks like Biden’s team is still trying to cancel billions of dollars in student debt without focusing on the housing industry or the racial gap at all.
But, that doesn’t mean that Stevens’ concerns are going entirely unheard. As noted in Matt Yglesias’ Substack (“Slow Boring”) on July 17,
The Federation of American Scientists (FAS) and partners are crowdsourcing ideas for national policies that could increase the supply of housing in the United States. A selection of the best ideas will be invited to pitch policy leaders and be discussed on Slow Boring. If you’re interested, head over to their challenge page and submit a brief idea.
I don’t know if the FAS has a political agenda,[20]but I think this idea is worth taking seriously and want all of my real estate industry readers to consider making a suggestion.[21] How about you be the person in charge of housing policy? As stated by the FAS,
The U.S. is short 3.8 million housing units to keep up with household formation. …, our national response to housing shortages can be bolstered by increased federal action across the White House, Congress, and agencies like the Department of Housing and Urban Development, the Department of Defense, the Department of Veterans Affairs, the Federal Housing Finance Agency, and the Treasury Department. [FAS] is looking for ideas for federal housing policy that are innovative, ambitious, and actionable. We are not looking for ideas for state and local policies (e.g., zoning reform). Your recommendations should focus on one of the following:
· Developing federal incentive structures that promote the construction of higher-density housing or multi-family housing in high-demand metropolitan regions
· Deploying or expanding new financing mechanisms to build more housing or fill critical gaps in home financing support for families
· Promoting housing innovation, including in building materials and methods, to reduce the financial and environmental costs of building new housing, and/or
· Aligning current policies around transportation, water, sewer, and other infrastructure and investments with housing production
· Introducing or improving federal data resources to measure the housing crisis
Submissions are taken online and the rules ask for 350 words or less. The FAS challenge appears to be open for suggestions until September 8, 2023.
Enable more loan assumptions
By the way, I have already submitted my idea to the FAS website to make loan assumptions (or wrap-around mortgages) easier and available on all GSE loans (with originator compensation to boot). My thought is to increase housing supply by encouraging more homeowners with low interest rates to sell and move without having to give up the embedded value of below current market rate loan.
That website address is again provided below. What’s your idea?[22]
We need your ideas to increase housing supply – Federation of American Scientists (fas.org).
[1]That article was edited, by the way, by well-traveled and extremely knowledgeable Fidelity National title insurance executive (and good friend), Chuck Cain. Chuck and I spoke at the NS3 conference in June about attorney title opinions and might be doing a similar presentation at the MBA’s Compliance and Risk Management Conference in DC in September.
[2]That’s proof I’ve been spitting into the wind for a long time. See also, my discussion on Fed egg-headery here and my comment letter to HUD on the “Binding GFE” proposal from 2008 (available wherever you find old HUD public comment letter data on the internet).
[3]I do not mean to discount differential medical treatment based on race as an issue, but I question the proffered solution to this poorly analyzed, but potentially important problem. We all know the plural to anecdote is not data, plus, public health academics lost a lot of credibility with me during the pandemic with their overly political assessment of the relative health importance of racial protests vs. COVID-19 social distancing.
[4]As a 21-year-old working as a vendor at Chicago’s old Comiskey Park (c. summer 1985), I got roughed up a bit by a white Chicago cop for no good reason. I then complained about this behavior to the (also white) cop in charge the next day. That experience was perhaps even less pleasant than the first one. As far as I know, no body cam video of either exchange exists.
[5]For anyone who wants to know what a video of my annual checkup looks like, here’s a scene from the 1985 movie Fletch with Chevy Chase.
[6]That is, the patient should wear the camera to demonstrate how they are treated. If the doctor wears a camera, all you will get are patients’ reactions (and probably way too much inappropriate video of patients that finds its way onto social media and the internet).
[7]I just covered my profound distrust of “all-knowing” government authorities in my last Musing.
[8]For example, my criticism of public health officials during the pandemic.
[9]Remember the arguments about “vanilla mortgages” during the Dodd Frank legislative discussions?
[10]The jury is still out on whether police body cams are effective in reducing racism in police interactions, but they certainly have provided more evidence of police mistreatment of citizens regardless of the reason.
[11]In this regard, lawyers and other professionals should also be transparent about their motivations, such as when offering “free” general guidance to non-clients. So, I will againadvise this blog is not to be taken as legal advice nor is any attorney-client relationship created by these Musings. These are my thoughts alone and no one pays me to say anything here as an advocate for any position, however, as you can imagine, I could be subconsciously careful not to bite the hands that feed me. It’s impossible to know the extent to which my subconscious influences my writings
[12]Former CFPB officials who enter private practice, in a related vein, are prohibited from contacting their former colleagues still at CFPB on behalf of clients for a period of time (so-called “revolving door” concerns). That doesn’t stop former CFPB attorneys from writing blog posts and speaking with other state and federal regulators and trade associations to influence enforcement interpretation and direction on behalf of clients.
[13]This is a similar analysis to the real estate agent “double-dipping” concern I discussed last December but is actually much clearer due to RESPA’s Section 8 (c)(4) Affiliated Business Arrangement (ABA) safe-harbor.
[14]My involvement dates to the early 1990s, but the ABA safe harbor dates back to the late 1980s.
[15]Often the advocacy of such a prohibition was couched as consumer protection, but really was simply a matter of competition between business models.
[16]RESPA 8 (c) (4) requires that: (i) the government mandated disclosure be provided at or before the referral, (ii) the consumer not be required to use the affiliate, and (iii) the only thing received is a return on ownership.
[17]CFPB’s new “abusive” interpretation was covered in Musing #60.
[18]The failure to mention RESPA reminded me of the CFPB’s 2017 Prospect Mortgage RESPA Consent Order which never once mentioned RESPA’s 8 (c)(2) exception (which was implicated by most of the allegations). Similarly, ignoring RESPA’s 8 (c) (4) ABA safe harbor while providing legal guidance to real estate agents regarding federal UDAAP law implications of ABAs is an “elephant in the room” kind of omission.
[19]State laws, however, may contain specific prohibitions for licensed professionals, so be sure to obtain local counsel for any particular affiliated relationship. Also, just because you can do something (such agent ABA ownership), doesn’t make it a good or profitable idea.
[20]See Musing #29-Blinding us with Science. I re-read that one and must say that it is one of my favorite Musings. It reminds me that social science is always fraught with politics, so it is important to distinguish the two.
[21]Who better to do so than real estate professionals with an interest in seeing a functional and fair market.
[22]If any of my reader’s ideas is selected, please let me know and I will happily report on that in a future Musing.