NEW YORK (MainStreet) – The Consumer Financial Protection Bureau is out with new regulations that are designed to give home buying consumers more choices, and more transparency when investing in a home mortgage.
The top target for the CFPB are high mortgage fees, and what they're proposing won't go over well with banks and lenders.
For example, one provision allows consumers to pay a lower interest rate when home buyers pay discount points, which enable buyers to reduce their monthly mortgage payment.
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The new rules, which are expected to take effect in Jan. 2013, also mandate that banks and mortgage lenders provide a “no-discount” loan option that enables consumers to more easily compare different loans among various lenders. The agency also plans on stopping the practice of lenders slapping homebuyers with fat fees that are tied to the loan amount, and can rise as the loan amount rises. Now lenders will only be able to charge a fixed, one-time, up-front origination fee.
In a May 7 speech to the U.S. Mortgage Bankers Association in New York City, Raj Date, deputy director at the CFPB , elaborated on the new rules, and on the agency’s philosophy on the consumer mortgage buying experience.
“The mortgage industry was supposed to be the broadest, deepest, most liquid, most sophisticated consumer finance market in the history of the world,” Date told his audience. “ But it failed us. It failed us because it failed to calibrate price, and it failed to calibrate risk. The result was that millions of homeowners ended up in loans that they either couldn’t understand or that they couldn’t afford or both. And we are still slowly, painfully recovering."
“So mortgage reform is appropriately front and center on the CFPB’s agenda,” he continued.
Date says the bureau, as an institution, is a firm believer in free and open mortgage markets, but want more transparency in the consumer mortgage market.
“Markets don’t work well if both parties to a transaction don’t understand what they’re getting into,” he said. “At the CFPB, we are already hard at work on this issue. We are working to integrate and simplify two needlessly complicated federal disclosure forms – one under the Truth in Lending Act and the other under the Real Estate Settlement Procedures Act. The idea is for borrowers to have a better chance to actually understand the price and risk profile of their obligations, and that’s better for everyone involved.”
Date, a former banker, says the CFPB is also targeting mortgage servicers. He told the New York audience that the bureau has already implemented “common-sense” rules to beef up mortgage dealer transparency.
“Servicers should give borrowers better information about how much they owe every month; or maybe they should give an earlier heads-up that an adjustable rate payment is about to change; or maybe they should warn borrowers that they are going to be force-placed into a potentially expensive insurance policy,” he said. “We’re just at the early stages of these particular rule-makings, but I’m optimistic that we can find a common-sense path forward.”
Banks and mortgage lenders are increasingly aware that there’s a new sheriff in town. Business practices that thrived only six years ago are on the CFPB’s hit list -- especially those high hidden fees, and what the bureau calls unfair and unbalanced mortgage approval processes, which historically have favored the lender at the expense of the borrower.
That’s good news for consumers, but it’s an uphill climb, as banks surely won’t take tighter regulations lying down.