Consumer Needs Should Come First in Mortgage Finance Reform

As Congress and the Administration consider how to reform the mortgage finance system, they should put the needs of consumers first, CFA Director of Housing Barry Zigas said in comprehensive comments submitted this week to the Senate Banking Committee.  While there are “many constituencies whose needs must be met by changes in the current mortgage finance system … the principal justification for any federal role in mortgage finance policy must be to ensure that everyday Americans continue to be able to enjoy dependable access to sustainable, responsible mortgage products at the lowest possible cost,” Zigas said.

Bipartisan legislation introduced by Senators Bob Corker (R-TN) and Mark Warner (D-VA) provides an appropriate framework for achieving that goal, Zigas said.  The bill (S. 1217) includes a number of key elements supported by CFA including:

• Separation of the aggregation, securitization and credit guaranty functions that historically have been combined in Fannie Mae and Freddie Mac.
• Establishment of an explicit federal guarantee of securities backed by eligible mortgages, administered by a new entity that would charge a fee for this guarantee in order to build up reserves against catastrophic losses suffered by other, private credit enhancers.
• Limiting this guarantee to apply only to buyers of the securities, and not to the shareholders or creditors of any entities issuing securities with the guarantee, servicing those securities, or providing required levels of private risk bearing capital to qualify the securities for the federal guarantee.
• A requirement for a deep layer of private risk-bearing capital to absorb losses before any government guarantee to investors is invoked.
• Regulatory authorities in the new public guarantor to determine mortgages eligible for inclusion in securities it will guarantee; requirements for participating private credit enhancers; standardized pooling and servicing agreements for all guaranteed securities; and oversight of the system.
• Creation of an annual fee on mortgage backed securities – in this case only those that are guaranteed by the proposed new authority – whose revenue would support critical affordable housing and community capital needs, as well as provide funding to support the development of new responsible credit products and to ensure that the new system adequately meets the needs of underserved and hard to serve populations and geographies.

While broadly supporting these elements of S. 1217, Zigas did call for some changes and additions to the proposed legislation designed to “strengthen the system and increase its benefits to consumers while limiting its risks to taxpayers.” In particular, Zigas said, “it is critical for Congress and the Administration to put the needs of consumers above all others, and to identify this objective as the fundamental purpose of creating any new entities, system or process through which capital is attracted to the mortgage market.”

CFA Supports USDA Proposal to Label Mechanically Tenderized Beef

In a comment letter submitted to the U.S Department of Agriculture, CFA voiced strong support for a recent Food Safety and Inspection Service (FSIS) rule proposal to require labeling of mechanically tenderized beef.  In particular, CFA praised the agency’s proposed approach of requiring all mechanically tenderized beef to be labeled and to require the labels both for products distributed to consumers through grocery stores and other retail outlets as well as for products distributed to food service outlets.

Mechanical tenderization is a process of piercing the product with a set of needles or blades, which break up muscle fiber and tough connective tissue.  This results in increased tenderness, but it also increases the risk that any pathogens, such as E. coli or Salmonella, located on the surface of the product can be transferred to the interior.  Because mechanically tenderized products have no visible signs of mechanical tenderization and processors provide no information indicating that the products have undergone such a process, consumers, food service and retail outlets which purchase beef products are unable to distinguish between mechanically tenderized beef and non-mechanically tenderized beef.

“Right now consumers have no way of knowing if the steaks they purchase have been mechanically tenderized and must be handled and cooked differently,” said Chris Waldrop, Director of CFA’s Food Policy Institute. “Labeling is an important tool to provide them with this information and we applaud FSIS’ requirement that these products should be labeled.”

Energy-Efficiency Standards Save Consumers Money

Consumers could save nearly $1,000 annually if energy efficiency performance standards were more prevalent and better understood, according to a CFA report released this week. “Hundreds of empirical case studies we reviewed show that barriers and imperfections in energy markets create an efficiency gap—the difference between our actual level of energy consumption and the optimal level of energy consumption,” CFA Research Director Mark Cooper said in a press release on the report. “The studies show the barriers affect both the supply-side and the demand-side of markets for residential and commercial/industrial products. More importantly, evaluations of policies over the past decade indicate that those barriers can be brought down by well-designed energy-efficiency performance standards, like fuel economy standards for cars and trucks or standards for air conditioners.”

On the subject of the “efficiency gap”, the report notes:

• Producers of energy using durables hesitate to include energy saving technologies in the products they sell because they are unsure of the market, uncertain about technology costs and future energy prices, and lack familiarity and skill with the technology.
• Consumers often do not demand energy savings technology because in many cases individuals who do not pay the energy bills (e.g., landlords) make the decision about which appliance (such as water heaters or air conditioners) to use and they tend to prefer inexpensive inefficient appliances. Consumers also lack the knowledge and ability to project energy consumption and price and calculate lifecycle costs. Consumers are sensitive to the first cost of consumer durables and pay more attention to other attributes of the durables.
• Energy efficiency performance standards address many of the most important market barriers and imperfections. They tend to level the playing field, reduce risk and uncertainty by creating a market for energy saving technologies, lower technology costs by stimulating investment in and experience with new technologies, reduce the need for information and the effect of split incentives, all of which help to overcome the inertia of routine and habit.

“Some analysts doubt the money-saving potential of energy efficiency standards,” said Cooper, “because they assume that energy markets work perfectly and automatically push consumers toward money-saving, energy-efficient options. But that’s not how the real world works.”

EU Urged to Adopt Data Protection Rules

A coalition of 23 consumer, privacy and public interest groups, including CFA, sent a letter to members of the European Parliament this week expressing support for the proposed European Data Protection Regulation, which is scheduled to come up for a vote in the near future. The groups stressed the urgency of enacting strong data protection in Europe, especially in light of recent revelations about data collection and access by U.S. intelligence agencies – and the involvement of U.S. Internet firms.

Citing the fact that Congress has so far failed to take necessary steps to update US privacy law or to rein in the activities of the National Security Agency, the letter warns that “consumers on both sides of the Atlantic remain at risk – our most sensitive data is too readily available for scrutiny and use.” The letter also points out that the multistakeholder process, which was initiated by the National Technology and Information Administration last year, has not produced meaningful results and that self-regulation is not working.

“At this point, our best hope is a good regulation in Europe, which will ultimately benefit consumers here at home as well,” said Susan Grant, CFA Director of Consumer Protection.

Government Shutdown Put Consumers at Risk

With the nation suffering through the now ended government shutdown for the past two weeks, a coalition of leading consumer groups sent a letter to members of Congress last week highlighting lapses in consumer protection caused by the shutdown.  The letter from CFA, Consumers Union, National Consumers League, on behalf of their low income clients, Consumer Action, National Consumer Law Center, Public Citizen, National Association of Consumer Advocates, and US PIRG described how the shutdown was hindering work across a wide array of issues, including airline and auto safety, food and product safety, financial services and investor protections, as well consumer protection efforts at the EPA, FCC, FDA and FTC.

“Consumers rely on the government to ensure the safety of the food they eat, the air they breathe, the products they use, the cars they drive, and the planes on which they fly,” the groups wrote.  “Consumers also expect that the government will help to protect them from predatory financial schemes, fraud and scams.  Many of these consumer protections have been significantly curtailed as a result of the shutdown…We urge a speedy resolution of the shutdown so that the government can resume its critical role on behalf of all consumers.”

CFA Legislative Director Rachel Weintraub presented these concerns in testimony before the Senate Commerce Committee hearing examining the impacts of the government shutdown on our economic security.  “The government shutdown that we are in the midst of is having a broad impact on consumers. Numerous consumer protections that consumers expect the government to ensure are not being provided due to this shutdown, placing consumers at potential risk,” she said.

Workplace Disability Benefits Provide Critical Financial and Emotional Support

Workplace disability benefits play a critical role in protecting the financial stability of individuals and their families, according to a report released jointly by CFA and Unum.  Recipients of employer-sponsored disability benefits interviewed for the study said the insurance allowed them to pay the bills, keep their homes and support their families, as well as provide social and psychological support.

“Beneficiaries told us that disability insurance payments played an essential role in protecting their financial and emotional lives,” said CFA Executive Director Stephen Brobeck in a press statement accompanying the report. “This employer-provided insurance clearly represents an important part of the social safety net.”

Group disability insurance provides income protection to employees unable to work because of injury or illness. Depending on the specific plan, within one week to six months after an employee stops working, he or she begins receiving payments equal to about 60 percent of his or her income. Only about one-third of private sector workers are protected by long-term disability insurance, whose monthly premiums – paid for by the employer, employee, or some combination – usually range between $10 and $30.

Because disability benefits typically replace 60 percent of pre-disability income, beneficiaries interviewed for the study did report a reduced standard of living. Eighty-five percent said they had to cut back or stop saving for retirement. But most beneficiaries also reported that their disability payments played a critical role in preserving an adequate standard of living. For example, 23 percent missed a mortgage or rent payment; but without the disability benefits, an additional 49 percent said they would have missed a payment.

Beneficiaries reported not just financial, but social, psychological, and health-related benefits of disability payments. For example, 77 percent said disability benefits helped them avoid strain with spouse or partner, and 78 percent said benefits helped them maintain their self-esteem as a provider for their family.