Treating The Consumer As An Adult
Apparently consumers have no self-control…..NO….. REALLY. The housing bust wasn’t just created due to fraud. Even to this day borrowers can still qualify for more than they can afford. Too many times consumers think since they are pre-approved or pre-qualified for a certain amount that means they can afford it. That is 100% false. The loan process doesn’t account for your children, utilities, groceries, insurance, etc.
“The plan of the new agency reveals the influence of “behavioral economics,” which teaches that people, even when fully informed, often screw up because of various cognitive limitations. A leading behavioral economist, Richard Thaler of the University of Chicago Booth School of Business, wrote “Nudge: Improving Decisions About Health, Wealth, and Happiness” last year with Cass Sunstein, who is President Barack Obama’s nominee for “regulatory czar.”
“Thus the agency might outlaw adjustable-rate mortgages on the theory that consumers don’t give adequate weight to a future increase in interest rates. But such mortgages are cheaper than fixed-rate mortgages, because they shift the risk of interest-rate fluctuations from lender to borrower. Do borrowers not understand they are trading a lower interest rate for greater risk?”