On August 17, 2012, The Consumer Financial Protection Bureau (“CFPB”) proposed new mortgage origination requirements that are designed to bring “greater accountability to the mortgage loan origination market. “
These changes do not require additional disclosures or other paperwork, but would call for lenders to, in fact, offer certain loan options and necessitate rate reductions when consumers have made the decision to pay fees up front.
The CFPB is seeking public comment on its proposal that would require the following:
Stating that it, “is often difficult for consumers to compare loans that have different combinations of points, fees, and interest rates”, The CFPB would require a lender to offer a loan product that does not have discount points or origination points or fees, unless the borrowers in question would not qualify for that type of product. This would allow a potential borrower to better see their options, and have an easier understanding on whether or not they wish to pay fees up front in order to reduce their loan payments.
Most banks that lend in the consumer market currently have no point/no fee options for qualified borrowers. And while there are, indeed, many products out there that a consumer may choose from, the industry, as a whole, has made it far easier over the past decade for potential borrowers to pick which options are the best for them. By requiring a lender to offer an option, even on a limited basis, is not so much regulation as telling an institution how to run its business.
This proposal is more straightforward. If the borrower pays a fee toward reducing their monthly payment, regardless of whether or not it’s called a fee, a point, or some combination of the two, the monies must actually do as advertised - reduce the rate. I can see the logic behind this, but again, I believe this is something that has already taken place in the industry and by previous regulation. With the new Good Faith Estimates that are being utilized right now, page 2 of the document clearly outlines, “Understanding your origination charges” and how that fee charged directly impacts your, settlement fees, and rate.
The public and the industry as a whole will have, until October 16, 2012, to review and provide comments on the proposed rules. The CFPB will review and analyze the comments before issuing final rules in January 2013.
To read this release in its original form, please click here.
Manager, Lending and Lending Compliance
Thomas LaChac is Manager of P&G Associatesâ€™ Lending and Lending Compliance team, and brings a wide range of experience in regulatory underwriting, quality assurance, regulatory compliance management and the banking and mortgage industries.