(9/18/2012) - Beginning in January 2013, mortgage originators will have to offer vanilla, no-point, no-fee loans to help consumers better compare mortgages, according to the Consumer Financial Protection Bureau.
The latest round of proposed mortgage industry rules also includes new vetting standards for home loan originators and mortgage brokers.
"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," Cordray added.
Designed to reduce mortgage tension headaches consumers suffer when comparing loans to find the best deal, the new rules will require:
A. No-Point, No-Fee Loan Option - Creditors will have to offer consumers, along with other loans, a loan without discount points or origination points or fees, unless a given consumer is unlikely to qualify for such a loan. Consumers sometimes choose points to help lower the interest rate and make the loan more affordable. Each point is one percent of the loan amount.
CFPB says such an option would remove the often apple-to-oranges loan comparisons consumers must make when shopping around for a loan. With a plain vanilla mortgage from every lender, consumers can make real life comparisons and determine which competing offer is the most financially prudent. They'll also be better able to determine how points and other fees add to their total costs.
Interest-Rate Reduction for Upfront Points or Fees - Consumers can still choose to pay points, fees and prepaid interest charges, but those costs "should function similarly to reduce the interest rate and thus a consumer's monthly loan payments," CFPB says Consumers must receive a certain minimum reduction of the interest rate in exchange for paying certain fees.
Mortgage originators' qualifications
In addition to regulating upfront points and fees, the CFPB is proposing changes to existing rules governing mortgage loan originators' and brokers' qualifications and compensation. The rules the CFPB are proposing include:
Qualification and Screening Standards: A hodgepodge of state laws and the federal Secure and Fair Enforcement for Mortgage Licensing (SAFE) Act of 2008 allow loan originators to meet different sets of standards, depending on whether they work for a bank, thrift, mortgage brokerage, or nonprofit organization. The CFPB is proposing a set of standards all loan originators must meet so consumers are more confident about an originator's qualifications. Standards include:
Character and Fitness Requirements - All loan originators would be subject to the same standards for character, fitness, and financial responsibility.
Criminal Background Checks - Loan originators would be screened for felony convictions.
Training Requirements - Loan originators would be required to undertake training to ensure they have the knowledge necessary for the types of loans they originate.
Prohibition of Certain Incentives Steered to Originators - In 2010, the Federal Reserve Board issued a rule to curtail the practice of "yield spread premiums" (YSPs) - loan originators directing consumers into higher priced loans based on the possibility that the loan originator could earn more money. A new rule would restate the existing rule and clarify confusion the rule has caused.
Arbitration Clauses and Credit Insurance Financing Restrictions - Prohibit both mandatory arbitration clauses in loan documents and increasing loan amounts to cover credit insurance premiums.
The public has until October 16, 2012, to review and provide comments on the proposed rules.
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