Proposed rules permit mortgage lenders to charge upfront points, fees

In an update to a story we ran May 16, the Consumer Financial Protection Bureau is seeking public comment on rules governing mortgage originations.

In an update to a story we ran May 16, the Consumer Financial Protection Bureau is seeking public comment on rules governing mortgage originations.  The Dodd-Frank Act bans upfront discount points, origination points or fees retained by the mortgage lender and the CFPB last may published rules establishing the prohibition. However, now the CFPB says it is using is exemption authority to allow lenders to continue to make mortgages available that involve upfront points or fees. New rules were proposed August 17 and comments are due Oct. 16.

The CFPB says it will allow lenders to charge upfront points or fees as long as it also makes available a “zero-zero” mortgage loan alternative. This is a comparable loan without the upfront fees or points.

The change comes as a result of feedback from a panel of consumer experts, the American Banker newspaper reported August 20. The CFPB says making both options available would benefit consumers and industry alike. “Making both options available could make it easier for consumers to evaluate different pricing options, while preserving their ability to make some upfront payments if they want to reduce their periodic payments over time” the CFPB said in this summary.

 “Consumers have a hard time comparing loans when they are dealing with a bewildering array of points and fees,” CFPB Director Richard Cordray said in this press release. “We want to provide consumers with clearer options and enable them to choose the loan that they believe is right for them.”

The CFPB said points and fees, often marketed under a variety of names, should result in a lower interest rate and a lower monthly payment. The CFPB is seeking comment on proposals to require that any upfront payment, whether it is a point or a fee, must be “bona fide,” which means that consumers must receive at least a certain minimum reduction of the interest rate in return for paying the point or fee.

The CFPB proposal also addresses rules governing compensation for loan offices and mortgage brokers. In an important consideration affecting many lenders at traditional banks, the proposal attempts to clarify and revise restrictions on pooled compensation, profit-sharing and bonus plans.

Furthermore, the proposal affirms the Dodd-Frank provision that mortgage lenders be “qualified.”

After evaluating the public comments, the CFPB plans to issue final rules in January 2013. In its request for comments, the CFPB seeks input on how long the implementation period should be for the new rules.

Fredrikson & Byron Law