Proposed mortgage rules would preserve points and fees

Regulators: Consumers should have option to buy down interest rates

Mortgage lenders would have to give consumers the option of a no-point, no-fee loan under proposed rules put forward by the Consumer Financial Protection Bureau with the intention of helping consumers understand mortgage costs and comparison shop.

The proposed rules would require that lenders provide an interest-rate reduction when consumers elect to pay upfront points or fees.

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

In its latest proposal, the CFPB is backing down from a plan to ban origination points that vary with the size of the loan. In May, the bureau said origination points are easily confused with discount points, and that it was considering allowing lenders to charge only flat origination fees. The new rules would still prohibit the payment of incentives to mortgage loan originators for steering borrowers into higher-priced loans.

The new proposal, if adopted, "would promote stability in the mortgage market, which would otherwise face radical restructuring of the current pricing structure" in order to comply with provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act aimed at steering, the bureau said.

Dodd-Frank places certain restrictions on the points and fees offered with most mortgages and the qualification and compensation of loan originators. Without the proposed rule-making, Dodd-Frank would prohibit payment of upfront points and fees for most mortgages, even when consumers prefer a loan with a lower interest rate and some upfront costs, the CFPB said.

The bureau is seeking public comments until Oct. 16, which it will review before issuing final rules in January 2013.

In a statement, the Mortgage Bankers Association said it "applauds the bureau’s efforts to protect borrowers by eliminating steering, and the proposed rule appears to be a good step in that direction. Consumers benefit from a vibrant and competitive mortgage market with a diversity of players, and this rule, as it relates to loan originator qualification and screening, should ensure a level playing field for originators, regardless of business model."

The MBA noted that the CFPB has released a number of proposed rules in the last few weeks that, "if finalized properly over time, will go a long way toward proving needed clarity and certainty to lenders and consumers, helping increase access to credit for qualified borrowers, stabilizing and growing the housing market. We look forward to reviewing the proposed rule more thoroughly over the coming weeks and providing comprehensive comments.”

Last week, the CFPB said it also intends to require lenders to provide home loan applicants with copies of written appraisals and other home value estimates developed in connection with their loan application.

Another proposed rule that would establish new appraisal requirements for higher-risk mortgages would require lenders to obtain an additional appraisal at no cost to the consumer if the seller acquired the property for a lower price during the past six months. 


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