Mortgage Rates and Related News For Monday January 21, 2013

Because of the Martin Luther King, Jr. holiday, markets and banks were closed, so there is no updated mortgage rate news to report on. But that doesn’t mean there is NO mortgage related news to discuss--last week the Consumer Financial Protection Bureau (CFPB) issued new rules for mortgage loans that directly affect the market--perhaps not the mortgage loan rates themselves, but definitely the procedures for approving the new purchase and refinance loans you might be applying for in the near future.

According to the press release issued by the CFPB on January 18, “The Consumer Financial Protection Bureau (CFPB) is issuing rules to prevent mortgage lenders from steering borrowers into risky and high-cost loans. The rules ban certain incentives that loan originators had to sell unsafe loans to consumers in the run-up to the financial crisis.”

The press release says prior to the housing crisis, and likely a direct cause OF the crisis, “unscrupulous mortgage loan originators too often led prospective homebuyers into risky and high-priced loan terms because they would generate higher compensation for themselves. The Federal Reserve Board, and then Congress through the Dodd-Frank Wall Street Reform and Consumer Protection Act, took important steps to limit these unscrupulous loan origination practices. The CFPB is finalizing the regulations governing how loan originators are compensated.”

That means important changes to the home loan and refinance loan industry as a whole--the implications of which might not become completely clear for some time. What are the new rules? Here’s the list as stated in the CFPB press release:

  1. 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 could make more money by getting the consumer to buy these services from the lender, broker, or one of their affiliates.
  2. 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. In the run-up to the crisis, too often consumers incorrectly assumed that their loan originators were looking out for the consumer’s best interest.
  3. 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 that require a more level playing field so consumers can be confident that originators are ethical and knowledgeable. The final rules generally include:
    1. Character and Fitness Requirements: Loan originators must meet character, fitness, and financial responsibility reviews;
    2. Criminal Background Checks: Loan originators must be screened for felony convictions; and
    3. 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.


As mentioned earlier, the implications of these new requirements and regulations are not necessarily known. Do these new rules affect the cost of a mortgage loan to the consumer in significant ways? What will the changes mean to the borrower?

These are issues we’ll be paying close attention to in the coming weeks as the industry sorts itself out in the wake of the new requirements. Join us tomorrow when we resume reporting on mortgage loan rates and the news that affected them.

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