CFPB Rules Prevent Originators from Steering Consumers into Risky Mortgages
by: Anna DeSimone
On January 18, 2013 the Consumer Financial Protection Bureau (CFPB) issued issuing rules to prevent mortgage lenders from steering borrowers into risky mortgages and high-cost loans. The CFPB is finalizing the regulations governing how loan originators are compensated. The rules are summarized below:
Prohibit steering incentives
The rules prohibit compensation that varies with the loan terms. A broker or loan officer cannot get paid more if the consumer takes a loan with a higher interest rate, a prepayment penalty, or higher fees. Moreover, the mortgage originator cannot get paid more if, for example, the consumer agrees to buy title insurance from the lender’s affiliate. Previously, loan originators had the ability to earn incentives when a consumer obtained services from affiliates. affiliates.
Prohibit “dual compensation”
Under the CFPB’s rules, the loan originator cannot get paid by both the consumer and another person such as the creditor.
Set Qualification and Screening Standards
Under state law and the federal Secure and Fair Enforcement for Mortgage Licensing (SAFE) Act, loan originators currently have to meet different sets of qualification standards, depending on whether they work for a bank, thrift, mortgage brokerage, or nonprofit organization.
These rules implement Dodd-Frank Act requirements and include:
Character and Fitness Requirements: Loan originators must meet character, fitness, and financial responsibility reviews;
Criminal Background Checks: Loan originators must be screened for felony convictions; and
Training Requirements: Loan originators are required to undertake training to ensure they have the knowledge about the rules governing the types of loans they originate.
The final rule also implements Dodd-Frank provisions that, for mortgage and home equity loans, generally prohibit mandatory arbitration of disputes related to mortgage loans and the practice of increasing loan amounts to cover credit insurance premiums.
In August 2012, the CFPB issued a proposed rule requiring mortgage loan originators to make available a loan option with no upfront discount points or origination fees, if they were making available one with upfront discount points or origination fees. Based on the comments received, the CFPB has decided not to finalize this part of the proposal. Once the new set of Dodd-Frank rules that the Bureau is implementing take effect, the Bureau will evaluate how those rules are affecting consumers’ understanding of upfront charges and the decisions consumers make.
To develop these mortgage origination rules, the CFPB engaged with consumers and industry, including a Small Business Review Panel made up of representatives from the small financial services providers that would be directly affected by the rules. The rules will take effect in January 2014, except that the prohibition on mandatory arbitration and on the financing of credit insurance will take effect in June 2013.
About the Author:
Anna is President and Founder of Bankers Advisory, Inc. She has authored numerous books and policy guides on the topic of fair lending and developed a software program that monitors compliance in accordance with the Interagency Guidelines for Self Assessment. She can be reached at anna@bankersadvisory.com
Anna DeSimone founded Bankers Advisory in 1986 and is a nationally recognized authority in residential mortgage lending. She has received numerous industry awards and has authored more than 40 best practices guides and hundreds of articles.
This post covers all topics about Mortgage Outsourcing and Mortgage Compliance Services. Thanks for posting and keep further posting…!!