A Framework for Consumer Protection in Home Mortgage Lending

This essay attempts to catalog and describe the various dimensions to regulating home mortgages. We do not discuss specific lending practices, loan terms, or legal prohibitions, but rather the major issues that policy-makers should consider when framing a system to protect consumers who take out loans secured by their homes. While we were writing this article, Congress passed a sweeping financial reform bill, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act), which includes provisions governing mortgage loans. Reading this article alongside the bill will help people to understand the complexities that legislators wrestled with in shaping the contours of the law. Consumer protection law-making is not finished. Congress created a new Consumer Financial Protection Bureau (CFPB) and vested the agency with authority to address many of the thorny issues we identify in this paper. States are also expanding some of their consumer protection laws in an effort to avert abuses in mortgage lending. As lawmakers continue the process of reforming mortgage regulation, they will have to choose among the paths we describe.