WASHINGTON – The Consumer Financial Protection Bureau said it plans to introduce new regulations that would ban origination fees that vary with the size of the loan, known as “origination points,” or limit the use of “discount points,” which are supposed to result in lower interest rates.
The changes would help consumers understand the fees they are paying and guarantee the fees provide any promised discounts, the agency said.
“Mortgages today often come with so many different types of fees and points that it can be hard for consumers to compare offers,” CFPB Director Richard Cordray said in a statement. “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.”
Banning origination points would discourage lenders from pushing consumers to take out bigger loans merely to generate higher fees. Flat origination fees still would be allowed.
Consumers pay discount points when a loan is offered, supposedly in exchange for a lower rate on the mortgage. The points can benefit consumers by allowing them to reduce their monthly loan payments, the CFPB said.
Among the rules being considered, outlined by the CFPB on Wednesday:
• When borrowers pay discount points, they must receive at least a minimum reduction in rate. Borrowers can reduce their monthly payments by paying points, which are expressed as a percentage of the loan amount. Under this rule, points that consumers pay must be “bona fide,” meaning borrowers must receive a minimum reduction in rate for paying that point at origination.
• Lenders must offer an option that doesn’t require the payment of discount points. When comparing mortgage quotes from different lenders, consumers need to compare apples to apples. One of the ways they can do this is by comparing no-point offers. CFPB would require lenders to give this option to all borrowers.
• Origination charges can’t vary with the size of the loan. The CFPB wants brokerage firms and creditors to charge only flat origination fees. That means a larger loan can’t come with higher origination charges.
The CFPB said it plans to formally propose the rules this summer, with the intention of completing them by January 2013, according to a news release.
The CFPB also is considering rules that would effectively expand the federal Secure and Fair Enforcement Act, which requires loan originators to meet certain professional standards.
Current law has different standards for loan originators who work at banks, thrifts, mortgage brokerages and nonprofits. But in a move that the agency said would “level the playing field,” the CFPB is considering requiring all loan originators to meet character requirements, undergo criminal background checks and complete training requirements.
The bureau may reaffirm the Federal Reserve Board rule aimed at curbing a lender’s ability to steer borrowers into more expensive loans. Loan originators cannot be compensated based on interest rates or other loan terms, and the CFPB is considering clarification to the rule currently on the books.
