Ending Up With Fine Print Despite Our Best Intentions

Here’s a good object lesson in why it is so difficult to write consumer disclosures. It’s from an article in HousingWire discussing the new RESPA regulations:

But others say the questions fail to properly address all the concerns in the industry. Phillip Schulman, of K&L Gates — a law firm that practices in advising on private equity, hedge fund and consumer mortgage finance — says it seems “the FAQs merely restate the requirements and instructions in the final rule, rather than provide practical tips and answers for implementation.”

For example, he notes the FAQs provide guidance on the completion of the “Escrow account information” by stating that a originator should check the box for “No” if the lender does not require an escrow account, and should check the box for “Yes” if the lender does require an escrow account. The answer seems clear, but Schulman says there is much more to it.

“Such a response,” he writes in industry commentary, “assumes that the presence of an escrow account is a mere ‘yes’ or ‘no’ answer, and HUD does not drill down to answer the more pressing question:  how does a lender complete the GFE when the answer is ‘Yes, but only until you have paid the loan down to 80%’ or ‘no, unless you fail to pay your real estate taxes?’”

The goal is to make it simple for the consumer to understand key information but in the real world issues are rarely as cut and dried as they need be to fit into simple yes and no boxes. Cognizant of the risks of litigation should any eventuality not be disclosed, disclosure notices expand to pages of fine print in order to cover any eventuality and then the consumer gives up halfway through.

The winners? Attorneys!

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