No time for crocodile tears

The real estate industry is now subject to new disclosure rules, courtesy of the Dodd-Frank law and the Consumer Financial Protection Bureau. Lenders are required to make transparent and complete disclosure of the terms of mortgages – including all costs and fees.

This information was sorely lacking during the boom in the 2000s. Residential real estate peaked in the U.S. in 2006, and the housing bust that followed exposed the worst practices of the era. Common-sense disclosure could have curbed many of the more egregious and preventable abuses.

The new regs also require a three-day grace period between the disclosure and the actual mortgage signing. In the past, closings were characterized by a flurry of signatures and initials – and it’s safe to say that most homebuyers had no idea what they are signing, even after the cursory explanation from their real estate attorney.

The rules were finalized two years ago and were initially scheduled to take effect in August. In response to industry concerns that the change could cause confusion in the height of the summer selling season, the agency postponed implementation until Oct. 3.

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We should remember why these rules became necessary: During the housing boom, mortgage underwriting became a mass-produced, nondisclosed, poorly originated free-for-all.

It was an unholy mess, and as a few of us were warning in advance, it ended badly.

Nonetheless, the mortgage and real estate industries are up in arms about the new rules. They have made the questionable claim that it is costing billions of dollars to prepare, even though they knew the changes were coming five years ago. And of course, they are predicting Armageddon, warning in a Wall Street Journal article that “the rest of the year could be marked by delayed closings, frustrated borrowers and confused real estate professionals as they adjust to the new rules.”

This isn’t the first silliness from the industry. The National Association of Realtors made some laughable assertions during and after the mortgage crisis. But the Mortgage Bankers Association had been usually fairly sober about things, so I was surprised by the hair-on-fire comments from David Stevens, the MBA’s chief executive. He told the Wall Street Journal that “lenders have spent billions of dollars in technology-system changes and training” – a number that appears to be a gross exaggeration.

Filling out four documents instead of two and transparently disclosing the full costs of a mortgage doesn’t sound like an insurmountable problem to me.

The mess in real estate was created by the industry itself. Its reactions and overreactions to reasonable disclosure measures are typical. No wonder so few people take it seriously when it keeps crying wolf. One day, when it really needs relief, no one will be listening. •

Barry L. Ritholtz is a Bloomberg View columnist.

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