Mortgage lenders would have to offer borrowers a straightforward
"no fee" home loan to make it easier to compare competing offers
under a set of new rules proposed by the Consumer Financial
Protection Bureau (CFPB).
The new rules would also require that borrowers receive a lower
interest rate if they choose to pay for origination fees and points
and would prohibit lenders from paying loan officers more for
steering borrowers into more expensive mortgages.
Basic loan must be offered
Under the no-fee rule, lenders would be required to offer
potential borrowers an option for a mortgage with no upfront fees
or discount points, in addition to any other options they may
offer. The idea is that this would enable consumers to make an
"apples-to-apples" comparison when shopping for mortgages from
"Consumers have a hard time comparing loans when they are
dealing with a bewildering array of points and fees," said CFPB
Director Richard Cordray. "We want to provide consumers with
clearer options and enable them to choose the loan that they
believe is right for them."
No-fee loans less common
Ironically, such loans are already offered by most lenders but
they're usually presented as a more complex product than loans in
which fees and points are billed separately. Such "no fee"
mortgages are described as having the origination fees "rolled
into" the interest rate, so that a borrower pays a higher rate in
exchange for avoiding upfront fees.
The CFPB essentially takes the opposite approach, that the
no-fee loan is the simplest mortgage, and that consumers can reduce
their rate by paying separate fees and discount points if they
choose to do so.
Along with the requirement that consumers be offered a no-fee
loan option, the CFPB put forward a proposed rule that consumers
who choose to pay for fees or discount points up front must receive
a bona fide rate reduction in exchange.
Limits on "steering" customers to pricier loans
Another proposed rule would implement part of the Dodd-Frank Act
that bans the practice of basing a loan originator's compensation
on the interest rate obtained or other terms of the loan. The rule
is meant to eliminate a practice, once common during the housing
bubble, where loan officers encouraged borrowers to take out loans
with higher interest rates or other features than made them more
costly than other loan products they were qualified for.
The proposed rules would also set uniform qualifications that
all mortgage loan originators would have to meet. Currently, there
are different requirements for originators working for banks,
thrifts, brokerages and nonprofits; the new rules are intended to
ensure that all meet the same minimum qualifications.
The rules will be posted for a 60 day public comment period
through Oct. 16, 2012 before the CFPB finalizes the rules,
scheduled to occur in January 2013.
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