The Consumer Financial Protection Bureau has begun the process of gathering input on rules to simplify mortgage points and fees – a change intended to bring greater transparency to the mortgage origination market.
The CFPB will introduce the proposed rules in summer 2012 and finalize them by January 21, 2013.
According to a press release, the Bureau is considering rules that would:
Require an interest-rate reduction when consumers elect to pay discount points: Discount points are a fee, expressed as a percentage of the loan amount, to be paid by the consumer to the creditor at the time of loan origination in return for a lower interest rate. Discount points can benefit consumers by allowing them to reduce their monthly loan payments. Under a CFPB proposal, any discount point 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.
Require lenders to offer consumers a no-discount-point loan option: Under the proposal, consumers must also be offered a no-discount-point loan. This would enable the homebuyer to better compare competing offers from different lenders.
Ban origination charges that vary with the size of the loan: Brokerage firms and creditors would no longer be allowed to charge origination fees that vary with the size of the loan to avoid confusing consumers.
Included with these proposed rules will be changes that address mortgage originators’ qualifications and compensation. These rules would apply to both mortgage brokers and lenders, including:
Set qualification and screening standards: The CFPB wants to level the playing field for all mortgage lenders with character, fitness and financial responsibility standards; criminal background checks; and training requirements across the board.
Eliminate “steering incentives”: A new rule would reaffirm the Federal Reserve’s rule that prohibits loan originators from directing consumers into higher-priced loans that earn higher commissions. The CFPB’s rule would clarify issues in the existing rule as well.
Read more on the CFPB proposals under consideration and alternatives considered.
Next, the Bureau kicks off the required Small Business Review Panel process. Members of this panel – which will consist of “small financial services providers,” will be asked to consider the proposed rules’ implications on operations and compliance; time and cost needed to implement them; the number of transactions that will be impacted; and how smaller companies will be affected c ompared with larger entities.
This list also provides a framework for community bankers and others that wish to comment. The Bureau is accepting feedback on these proposals at MortgageLoanOrigination@cfpb.gov.
This summer the CFPB will publish a Notice of Proposed Rulemaking, which will be followed by a formal public comment period.