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Making mortgage fees make sense

by Broderick Perkins

(5/11/2012) Erate Exclusive - Kicking and screaming, mortgage lenders are going to have to clarify and simplify mortgage points and fees, if the Consumer Financial Protection Bureau (CFPB) has anything to say about it -- and it does.

This week, the consumer watchdog announced it's working to ring in the next New Year with greater transparency to the cloudy mortgage origination business.

CFPB will propose rules this summer and wrap up the new regulations by Jan. 2013 to make it easier for consumers to understand mortgage costs and compare loans - which is what they need to do to find the best deal.

"Mortgages today often come with so many different types of fees and points that it can be hard to compare offers," said CFPB Director Richard Cordray.

CFPB's authority is endowed by the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank), which places certain restrictions on the points and fees offered with most mortgages.

You'd think lenders would already be about clearing up the confusion, but, hey, they were still botching foreclosures while the ink was drying on the National Mortgage Settlement.

CFPB has to act with proposals that would:

• Mandate an interest-rate reduction when consumers elect to pay discount points. Discounts fees are expressed as a percentage of the loan amount. The borrower pays the fees in exchanged for a lower interest rate. A lower rate means a lower monthly payment. This rule would mandate that any discount point must be true and come with a specific minimum rate reduction for each point.

• Require lenders to offer a no-discount-point loan option. It's tough to compare loan offers that have a confusing combinations of points, fees, and interest rates. This provision would enable the borrower to better compare competing offers from different lenders.

• Ban origination charges that vary with the size of the loan. "Origination points" are often confused with discount points. A flat origination fee edict would change that.

CFPB's proposal likely will also seek to standardize mortgage originators' qualifications. Originators, including mortgage brokers and loan officers, take mortgage loan applications from consumers seeking to buy a home or refinance a mortgage.

Originator rules under consideration include:

• Qualification and screening standards. Under a hodgepodge of state laws and the federal Secure and Fair Enforcement (SAFE) Act, loan originators currently meet different sets of standards, depending on whether they work for a bank, thrift, mortgage brokerage, or nonprofit organization. A CFPB proposal would help level the playing field for different types of loan originators so consumers can be confident that originators are ethical and knowledgeable.

• Character and fitness requirements. All loan originators would be subject to the same standards for character, fitness, and financial responsibility.

• Criminal background checks. Loan originations would be screened for felony convictions.

• Training Requirements. Loan originators would be required to enroll in training to ensure they have the knowledge necessary for the types of loans they originate.

• Prohibit paying steering incentives to mortgage loan originators. A 2010 Federal Reserve Board order prohibits loan originators from directing consumers into higher priced loans to earn more money. The Dodd-Frank Act requires the CFPB to issue similar rules reaffirming the Board's rule, which bans yield spread premiums used to reward loan originators for steering consumers to higher interest rates.

More information

Take a look at the proposed rules.

Also see a list of related questions.

Once CFPB publishes a proposed rulemaking notice this summer, the issue will be open for a public comment period.

Anyone can email the CFPB their comments and feedback at [email protected].

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