The Consumer Financial Protection Bureau outlined rules this week that would place new restrictions on mortgage origination points and fees, as well as originator compensation.
The proposals, which are mandated by the Dodd-Frank Act, would require originators to reduce interest rates when customers elect to pay discount points; offer consumers a loan product with no discount points; and would ban origination charges that vary with the size of the loan.
The agency plans to formally propose the rules this summer and finalize them by January 2013.
"Mortgages today often come with so many different types of fees and points that it can be hard to compare offers," CFPB Director Richard Corday said in a press release. "We want to bring greater transparency to the market so consumers can clearly see their options and choose the loan that is right for them."
The rules would also impose new requirements on originators themselves, including brokers and loan officers, and would build on a Federal Reserve rule that prohibits compensation that varies with loan terms.
The agency detailed the rules in documents released Wednesday that will be reviewed by a panel of small business experts. The CFPB, which also issued a list of questions for panel participants, must convene the panel pursuant to the Small Business Regulatory Enforcement Fairness Act.
The SBREFA process, which must be completed before a formal rule is proposed, could take a few months.
A panel is expected to meet in the next few weeks, a senior CFPB official said Wednesday, after which the bureau has 60 days to prepare a report on its findings that would be released in conjunction with the notice of proposed rulemaking.
The agency said the rules — which would include an implementation period — would simplify mortgage points and fees, and make it easier for homeowners to understand mortgage costs and compare loans so they can choose the best deal.
The proposals would require that any discount point that a consumer elects to pay be "bona fide," meaning that consumers must receive at least a certain minimum reduction of the interest rate in return for paying the point. It would also require that borrowers be offered a no-discount-point loan.
"This would enable the homebuyer to better compare competing offers from different lenders," the agency said in a press release.
Under the proposal, brokerage firms and creditors would only be allowed to charge flat origination fees, rather than origination fees that vary with the size of the loan. Those are often confused with discount points, the agency said.
The proposed rules are separate from the qualified mortgage rule the bureau is considering, which would require mortgage originators to verify a borrower's ability to repay a loan unless it meets the definition of a so-called qualified mortgage. But the senior CFPB official noted that the "bona fide" point concept is also an element of QM, and the agency thought it would be helpful to include the provision in these rules as well.
In addition to rules limiting points and fees, the proposals would impose strict screening and qualification standards on mortgage loan originators, which includes mortgage brokers and loan officers who take applications from consumers seeking to buy a home.
The Dodd-Frank Act requires that originators be qualified, and the new rule would subject them to new standards for "character, fitness and financial responsibility," screen for felony convictions, and require new training related to the types of loans they originate, the press release said.
Dodd-Frank also codified a rule that the Fed issued in 2010 prohibiting loan originators from steering borrowers into higher priced loans so they could earn more money. The statute required CFPB to issue similar rules, and a senior CFPB official said this proposal closely aligns with the Fed regulation, which bans the practice of varying compensation based on interest rates or certain other loan terms.
The bureau is taking comments from the public through its website and through email at this address.