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4 landmark moves of consumer protection

Though it was only a small part of the stimulus, the first-time homebuyer tax credit could be considered a triumph for consumers. It helped people who were in a position to buy a home, and it helped the moribund housing market, which in turn helped economic growth.

"People did respond to the tax credit and if one looks at the data, what one sees is that the home prices began to stabilize once the tax credit went into effect. Ever since, there has been some movement in home prices. It essentially stopped the bleeding in the housing market and then, of course, in the past couple of years, we have had some recovery," says Lawrence Yun, chief economist for the National Association of Realtors.

Not everyone is willing to pin today's recovering housing market on the first-time homebuyer tax credit. In 2011, Austan Goolsbee, former chairman of the president's Council of Economic Advisers, told MSNBC he believes the tax credit was a mistake, Politico reported.

Consumer Financial Protection Bureau

The fact that the little guy often gets the short end of the stick in financial deals with businesses and corporations led to the establishment of the Consumer Financial Protection Bureau in the Dodd-Frank Act.

The bureau started operations in July 2011 and since then has issued a set of rules pertaining to mortgages. It also had some high-profile success in suing abusive credit card companies.

The bureau has another feather in its cap. "It is the only federal regulator that has completed all of its rules on time," Mierzwinski says, referring to the Dodd-Frank mandated timelines for researching and writing rules for consumer protection.

The mortgage and housing industry played a big part in the developments that lead up to the financial crisis. Throughout the recovery, consumers have suffered as a result of bad mortgage lending practices and the securitization processes that enabled them. Securitization refers to the process that turns an asset, in this case an individual mortgage, into an investment, according to the Securities Industry and Financial Markets Association.

Lenders could write a risky loan and then sell it, effectively divesting themselves of all risks associated with the loan. That loan would then be pooled with other loans of varying quality to make a mortgage-backed security.

New rules from the CFPB set some boundaries around the metrics that lenders can use to qualify borrowers for loans. Loans that fall within the boundaries will be qualified mortgages and will not be subject to a rule from Dodd-Frank, known as the 5 percent risk retention rule. The risk retention rule requires that lenders hang on to 5 percent of the credit risk from loans made into securities. The Federal Deposit Insurance Corp. is currently working on implementing the risk retention rule and is revising the definition of a qualified mortgage to match the rule written by the CFPB.

The CFPB rules also offer homeowners a way to avoid foreclosure in the future. The agency has laid out requirements for appraisals and the way that lenders value properties in addition to rules on mortgage servicing.

Joe Parsons, senior loan officer at PFS Funding, a mortgage banker in Dublin, Calif., says the end result could make it more difficult for a borrower to get a loan and it could be more expensive.

"They have raised the cost of mortgages, raised the cost of appraisals and stretched out the time it takes to get a mortgage," he says.

But, the CFPB has a broad mandate over consumer protection. It also has recovered $85 million for consumers victimized by credit card companies, specifically three subsidiaries of American Express. Between 2003 and 2012, consumers were deceived about bonus-point programs, charged unlawful late fees, discriminated against on the basis of age and were misled about debt collection, according to the CFPB. American Express Centurion Bank and American Express Bank, FSB, also failed to report customer disputes to credit bureaus.

"The second thing that they did in their case is they sent the money directly back to consumers. Consumers did not have to fill out forms. They did not have to jump through hoops as the (Office of the Comptroller of the Currency) used to make them do in the rare occasions when the OCC issued a penalty against a bank," Mierzwinski says.

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