Consumer Law

A Bit More About Steering

By Jeff Sovern

Yesterday I posted excerpts from an affidavit claiming that Wells Fargo steered lenders who could have had prime loans to more expensive subprime loans.  In markets that work properly, steering wouldn't be effective.  If, for example, you walked into a grocery store and they offered milk at $30 a quart--but said you should buy at that price because they saved you some paperwork--you'd buy elsewhere.  But obviously in the home loan market, many consumers did not go elsewhere.  Why is that?  There are a number of reasons.  Among them are that home loans are far more complicated than shopping for groceries, so that many consumers can't easily tell that they're being charged more than they should be.  Home loans have numerous price variables (monthly payments, length of term, points and fees, adjustable rates, and so forth) and prices vary according to how credit-worthy borrowers are, so that many borrowers undoubtedly did not realize that they could have saved thousands of dollars (and perhaps their homes if they later ended up in foreclosure because the payments were higher) by obtaining prime loans.  The very fact that steering occurred adds additional force to the argument that the home loan market does not work properly, that existing regulation has failed for many consumers, and to arguments that regulation is needed to fix that market.

Full post as published by CL&P Blog on June 11, 2009 (boomark / email).