Earlier today the CFPB issued a proposed rule that would further regulate points and fees associated with mortgages, as well as change existing rules governing mortgage loan originators’ qualifications and compensation. Director Cordray indicated that the new rules are necessary to “to provide consumers with clearer options and enable them to choose the loan that they believe is right for them.”

According to the CFPB, the proposed rule would further regulate mortgage related points and fees by:

  • Requiring Lenders to Make a No-Point, No-Fee Loan Option Available: Under the proposed rule, creditors would have to make available to consumers a loan without discount points or origination points or fees, unless those consumers are unlikely to qualify for such a loan; and
  • Requiring an Interest-Rate Reduction When Consumers Elect to Pay Upfront Points or Fees: The CFPB is seeking comment on proposals to require that any upfront payment, whether it is a point or a fee, must be “bona fide,” which means that consumers must receive at least a certain minimum reduction of the interest rate in return for paying the point or fee.

The proposed rule would also change existing rules governing mortgage loan originators’ qualifications and compensation by:

  • Setting Qualification and Screening Standards: The CFPB is proposing rules to implement Dodd-Frank Act requirements that all loan originators meet with certain qualifications including: (1) satisfying certain character and fitness requirements; (2) passing a criminal background check; and (3) completing certain training requirements;
  • Prohibiting Payment of Steering Incentives to Mortgage Loan Originators: The CFPB’s rule would implement the Dodd-Frank Act provision and clarify certain issues in the existing rule that have created industry confusion; and
  • Placing Restrictions on Arbitration Clauses and Financing of Credit Insurance: The proposal would implement Dodd-Frank Act provisions that, for both mortgage and home equity loans, prohibit including mandatory arbitration clauses in loan documents and increasing loan amounts to cover credit insurance premiums.

The CFPB claims that without these rules “the Dodd-Frank Act would prohibit payment of upfront points and fees for most mortgages even where a consumer prefers a loan with a lower interest rate and some upfront costs.” The CFPB also believes that “the proposal, if adopted, would promote stability in the mortgage market, which would otherwise face radical restructuring of the current pricing structure in order to comply with Dodd-Frank.” The public has 60 days, or until October 16, 2012, to review and provide comments on the proposed rule. The CFPB anticipates issuing a final rule in January 2013.

Stay tuned to the CFPB-Lawblog for our complete analysis of this rule and its full impact on the mortgage industry.