The newly-created Consumer Financial Protection Bureau is scheduled to begin functioning in 2011. The Consumer Financial Protection Bureau is now responsible for regulating and enforcing consumer protection laws as the new authority on activities currently monitored by the Federal Trade Commission (FTC), the Department of Housing and Urban Development (HUD) and the Federal Reserve (the Fed).

The shift in responsibility will bring some key benefits to the practice of real estate. The law requires the bureau to reevaluate rules on appraisals and replace the industry-protested Home Valuation Code of Conduct (HVCC) which Fannie Mae and Freddie Mac imposed in 2009. Appraisal management companies will also come under new regulations, hopefully eliminating the alleged practice of assigning inexperienced appraisers to unfamiliar locations (which is only complained about when the appraiser does not hit the number the agent needs) or using less than all fundamentals in the trilogy of cost, comps and income approaches to setting home values (which will keep the appraisal valuations conservatively low).

A national hotline system will allow borrowers to report any unfair practices and lodge complaints about deceptive lenders. The bureau will also take over HUD’s duties in controlling the Real Estate Settlement Procedures Act (RESPA) and protect buyers and sellers from unlawful fees from lenders, title companies, agents and builders.

The bureau is also expected to rewrite national home purchase disclosures, such as the Good Faith Estimate (GFE) and Truth-in-Lending Act (TILA) disclosure, possibly unifying them into a single package. [See first tuesday Forms 204 and 221]

Rules will also be set into place requiring lenders to more stringently verify their applicants’ ability to repay the loans they apply for.

first tuesday take: Most everyone will welcome a change to the sticky appraisal process currently policed by Fannie and Freddie, but dictated by each individual lender as they seek an appraisal. Brokers and lenders alike have complained that homes are being devalued because of the use of short sales and foreclosures as comparables, again only when the number is not hit by the appraiser. Electronic appraisals have proven an ineffective substitute to on-site evaluations. [For additional commentary on the contentious Fannie Mae appraisal standards, see the July 2010 first tuesday article, Alterations to Fannie Mae’s appraisal selection standards.]

Creation of a consumer protection bureau is 30 years overdue from a government that’s long been batting for the lender’s team with little regard for the buyer and seller, an effort based on spurious lender propaganda that homebuyers cannot be lumped into one description and then treated as mathematical illiterates who need a nanny in Washington. Reform giving homeowners watchdog support when they acquire a mortgage will shift responsibility for entering into prudent, manageable agreements to industry professionals, the gatekeepers to the real estate market — the individuals most likely to implement this new, responsible reform.

Re: “What the new consumer protection bureau will do for home buyers” from the New York Times