The Consumer Financial Protection Bureau proposed rules on Friday that it says will bring greater accountability to the mortgage origination market and make it easier for consumers to understand mortgage costs.
They expand existing regulations governing loan originator compensation and qualifications, while implementing new laws.
The proposed rules require lenders to offer consumers a comparable, alternative loan with no upfront discount points, origination points or fees that are retained by lenders or their affiliates before it imposes upfront points and fees on consumers.
The ban on paying or receiving commissions based on terms of the transaction other than the loan amount will continue, but with some refinements. For example, the proposal allows reductions in loan originator compensation to cover unanticipated increases in closing costs from non-affiliated third parties under certain circumstances.
Lenders will be forced to reduce interest rates when consumers elect to pay upfront points, expressed as a percentage of the loan amount, or fees to covers costs associated with origination or prepaid interest charges.
Earlier in the year, the CFPB considered a flat origination fee that could not vary with the size of the loan. However, after meeting with outside groups and small businesses, the bureau decided that approach “was not in anyone’s interest,” a senior CFPB official said Friday on a conference call.
“After looking at that information, we thought (a flat fee) would have a disproportionate impact on lower income borrowers,” the official said. “Also, it seemed like it would be a very complicated approach, that is you could have multiple fees, which goes against the notion of simple disclosure and shopping tool for consumers.”
Under state law and the federal Secure and Fair Enforcement for Mortgage Licensing Act, loan originators must meet different sets of qualification and screening standards, depending on whether they work for a bank, thrift, mortgage brokerage or nonprofit organization. The CFPB is proposing to implement Dodd-Frank Act requirements that subject all loan originators to character and fitness requirements, criminal background checks and training requirements for loan originators.
“The proposal would help level the playing field for different types of loan originators so consumers could be confident that originators are ethical and knowledgeable,” the bureau said in a statement.
The public has October 16 to provide comments on the proposed rules, which the CFPB will analyze before finalizing in January.
“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.”