New Rules May Simplify Mortgages

Individuals often face bankruptcy because they cannot afford their house payments. This is often because they did not understand the terms of their mortgage or were unable to easily compare the products offered by competing mortgage lenders. The Consumer Financial Protection Bureau (CFPB) recently announced that it expects to propose new rules this summer to simplify mortgage points and fees and to bring more transparency to the mortgage industry. The new rules, which would make it easier for consumers to understand mortgage costs, are expected to be finalized in January.

Currently many consumers struggle with understanding all of the different fees and points associated with mortgages. This makes it difficult to compare lenders when mortgage shopping. The first proposal the CFPB is considering is requiring an interest rate reduction when consumers elect to pay discount points. Discount points are a fee, expressed as a percentage of the loan amount, to be paid by the consumer to the creditor at the time of loan origination in return for a lower interest rate. Discount points allow consumers to lower their monthly loan payments.

For example if you paid "two points" on a $200,000 loan, then you would pay 2% of the $200,000 ($4,000) up front and in exchange you would receive a reduction in your interest rate, which would lower your monthly payment, which may help you avoid foreclosure in the future. The CFPB proposal would mean that consumers must receive at a least a certain minimum reduction of the interest rate in return for paying the point.

Another proposal being considered by CFPB would require lenders to offer consumers a no-discount point loan option. Currently it's difficult for consumers to compare loan offers that have different combinations of points, fees and interests rates. The proposal would require lenders to a offer consumers a no-discount-point loan, which would enable consumers to better compare competing offers from different lenders.

The CFPB would also ban origination charges that vary with the size of the loan. This would prohibit creditors from charging origination fees that vary with the size of the loan and would require flat origination fees. These "origination points" are easily confused with discount points.

The CFPB is also considering setting qualification and screening standards for loan originators, including mortgage brokers and loan officers. Currently loan originators have to meet different sets of standards under state law and the federal Secure and Fair Enforcement Act, depending on whether they work for a bank, thrift, mortgage brokerage or nonprofit organization.

This proposal would help level the playing field for different types of loan originators so consumers could be confident that the originators are ethical and competent. All loan originators would be subject to the same standards for character, fitness and financial responsibility. Loan orginators would be screened for felony convictions. They also would be required to undergo training to ensure they have the knowledge necessary for the types of loans they originate.

Finally, the CFPB is also proposing to prohibit paying steering incentives to mortgage loan originators. The regulations would ban the practice of varying loan originator compensation based on interest rates or certain other loan terms, such as directing consumers into higher priced loans because they could earn more money.

These proposed regulations may enable consumers to better understand the costs associated with a mortgage, saving them money by allowing them to select the most cost-efficient mortgage. In turn, this may prevent consumers from filing bankruptcy in the future. Thank you for taking the time to read this. Any comments or questions are welcome.