Bipartisan Mortgage Reform Bill Introduced

Shortly before Congress left for its July 4^th recess, a bipartisan group of senators led by Sen. Bob Corker (R-TN) and Sen. Mark Warner (D-VA) introduced draft legislation to reform the mortgage finance system.  CFA Director of Housing Policy Barry Zigas called the bill “an important step forward in restoring a durable mortgage finance market for consumers,” but he said it “needs to have a strengthened emphasis on providing broad access to credit for consumers on reasonable terms.”

The bill would establish a new so-called “Federal Mortgage Insurance Corporation” (FMIC) to provide a credit guarantee to investors in a limited type of mortgage bond. The insurance would be paid for by consumers through a charge on their mortgages. Under the bill, the government insurance would kick in only after a deep layer of private risk bearing capital was exhausted in fulfilling obligations to investors. The new corporation would have regulatory authority to set the terms and issuers of such credit insurance, and these entities would have no recourse to the FMIC for their own solvency or the benefit of their shareholders or creditors.

“The Corker-Warner bill reaffirms a bipartisan agreement that the U.S. government has an important role to play in assuring that American consumers have access to sustainable, long term mortgage credit.  The bill embraces principles that have been endorsed by industry, consumer groups, and, in February 2013, by the Bipartisan Policy Center’s housing commission report,” said Zigas, who serves as a member of the Bipartisan Policy Center’s housing commission.  “But the bill as drafted tilts too heavily toward meeting the needs of lenders and investors,” he added, “and not enough toward making sure that the proposed structure is responsible for assuring that credit worthy consumers across a broad range of circumstances and neighborhoods can obtain home financing at a reasonable cost.”

Zigas called for a number of changes to the bill “to enhance its value to American consumers,” including:

• expanding the bill’s purpose to explicitly emphasize the FMIC’s obligation to assure access to responsible, sustainable, long term mortgage credit for U.S. consumers across the broadest possible range of creditworthy borrowers and in all communities across the country;
• removing the bill’s proposed minimum 5 percent down payment requirement for mortgages backing the insured securities, instead leaving it to the proposed agency to adopt rules in this area after the full range of other underwriting considerations that make up comprehensive, responsible underwriting have been assessed;
• including a member on the FMIC board who is charged specifically with representing public and consumer interests; and
• adding a requirement, in addition to the requirement to maximize returns for investors,  that servicers of FMIC securities assure fair treatment of consumers and reasonable processes for loan modifications and other steps for owners’ benefit if they run into trouble with their mortgage.

Zigas noted that the introduction of the Corker-Warner legislation “is a promising, but very early step on what will likely be a years-long effort to replace Fannie Mae and Freddie Mac with a durable mortgage finance system.”

Low-Income Children Face Greater Safety Risks

Children from low-income families are at greater risk for unintentional injuries and foodborne illnesses than children from higher-income families, according to a report released by CFA last month.  The report, which drew from incomplete statistical information and dozens of academic studies, concluded that to more fully understand these risks, it is essential to begin collecting better data on the relationship of family income to product related unintentional injuries and deaths as well as to incidence of foodborne illness. “This issue needs more attention from researchers, safety groups, social welfare groups, government agencies, and businesses selling related products,” said CFA Legislative Director Rachel Weintraub.

Some of the highlights of the report include:

• Unintentional injuries represent the leading cause of death and injury for children between the ages of 1 and 14.  Each year, such injuries are responsible for about 5,000 child deaths, about 5 million child emergency room visits, and millions more unreported injuries.
• Children under 15 years of age account for roughly half of all foodborne illnesses. Children under 5 years of age are particularly vulnerable, experiencing the highest rates of infection for Campylobacter, Salmonella, Shigella, E. coli O157:H7 and other shiga-toxin producing E. coli bacteria (STEC).

“Given the high incidence of foodborne illness among children, it is especially important to learn more about the influence of factors on the safety of foods consumed by low-income children,” said Chris Waldrop, Director of  CFA’s Food Policy Institute.  “Collecting more and better data related to family income would greatly improve our understanding of these safety issues.”

California’s Auto Insurance Costs Drop, While Rates Elsewhere Rise

Average auto insurance expenditures in California declined between 1989 and 2012, while every other state in the nation saw substantial increases over that same period, according to an analysis released by CFA last month.   Nationally, Americans spent $791 for auto insurance coverage in 2010, $240, or 43 percent, more than they did in 1989, according to the CFA analysis of data collected by the National Association of Insurance Commissioners. Californians spent an average of $746 per year for auto insurance coverage in 2010, $2, or 0.3 percent less per year was spent in1989 even without adjusting for inflation.

The savings in California are directly linked to the regulatory reforms of Proposition 103, approved by California voters in 1988, said CFA Director of Insurance J. Robert Hunter. At that time, California insurance rates were the third highest in the nation and 36 percent higher than the national average. “No other state has put in place the kind of strong oversight that California voters created in 1988, and no other state has seen auto insurance prices decline,” Hunter said.  “In California, as a result, Proposition 103 drivers are paying less for car insurance today than they were 25 years ago.”

Basic Savings Accounts Remain Important Savings Vehicle

Basic savings accounts remain an important savings vehicle for most Americans, especially for low- and moderate-income (LMI) families, but that these accounts vary widely in terms of pro- and anti-consumer characteristics, according to a report released last month by CFA.  “Bank savings accounts remain the most useful way for most lower-income families to save for a rainy day, but some of these accounts are far more pro-consumer than others,” noted CFA Executive Director and report author Stephen Brobeck.  “Bank regulators could play a critical role in improving access to these accounts and eliminating unfair practices,” he added.

The report, “Savings Accounts: Their Characteristics and Usefulness,” found that nearly half of all families (49 percent) had a “traditional” (or basic) savings account with a median balance of $2,400.  More than one-third of all LMI families (37 percent) had one of these accounts with a median balance of $800, representing 16 million LMI families with total balances exceeding $13 billion. As the report notes, these basic savings accounts represent the best source of funds for LMI, and even many middle-income, families to pay for unexpected expenses such as car repairs and many medical and dental bills.

The report analyzed accounts based on a series of pro-consumer characteristics, including disclosure of rates and fees, minimum balances to avoid fees, the level of monthly fees, interest rates and yields, limiting conditions, and incentives to save.  It found significant differences among accounts in such areas as the different minimum balance requirements to avoid monthly fees, the amount of those monthly fees, and the quality of disclosure provided to prospective account holders.  It also found significant difference with regard to certain anti-investor practices, such as limiting the number of withdrawals or imposing a “dormancy fee.”

The report includes recommendations for banks, banking regulators, and policymakers, with a particular focus on incentives to increase savings.

Identity Theft Services Improve Practices

Since CFA issued its April 2012 report measuring identity theft services’ adoption of best practices, including how well identity theft services provided key information to prospective customers on their websites, many of the services that were studied have made significant improvements, CFA reported earlier this month. CFA’s analysis and recommendations were based on the voluntary guidelines, Best Practices for Identity Theft Services, which the organization developed in 2010-2011 with the help of theft service providers and consumer advocates.

“We are pleased with how responsive many identity theft service providers have been to our suggestions,” said CFA Director of Consumer Protection Susan Grant. “The goal of our best practices is to deter misleading claims and ensure that consumers can see exactly what these services do and how much they cost before signing up. The best practices initiative sprang from a 2009 CFA study that raised concerns about misrepresentations, lack of clear and complete information, and other problems.”

CFA examined the websites of twenty services, nine of which were members of its Identity Theft Service Best Practices Working Group at the time and all of which enable consumers to buy the services directly online. Based on that examination, CFA determined that all of the working group members whose websites were included had responded satisfactorily to CFA’s recommendations, as did two companies that were not working group members, Equifax and LifeLock. (LifeLock has since joined the CFA working group.) “CFA commends these identity theft services for their leadership and their commitment to our best practices,” Grant said. “Consumers and businesses that are considering purchasing id theft services should look for those that clearly explain what they offer and don’t use deceptive claims.