New rule proposed by CFPB would require no-fee home loan option - KYTX CBS 19 Tyler Longview News Weather Sports

By Kara Johnson
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Mortgage lenders would have to offer borrowers a straightforward "no fee" home loan to make it easier to compare competing offers under a set of new rules proposed by the Consumer Financial Protection Bureau (CFPB).

The new rules would also require that borrowers receive a lower interest rate if they choose to pay for origination fees and points and would prohibit lenders from paying loan officers more for steering borrowers into more expensive mortgages.

Basic loan must be offered

Under the no-fee rule, lenders would be required to offer potential borrowers an option for a mortgage with no upfront fees or discount points, in addition to any other options they may offer. The idea is that this would enable consumers to make an "apples-to-apples" comparison when shopping for mortgages from different lenders.

"Consumers have a hard time comparing loans when they are dealing with a bewildering array of points and fees," said CFPB Director Richard Cordray. "We want to provide consumers with clearer options and enable them to choose the loan that they believe is right for them."

No-fee loans less common

Ironically, such loans are already offered by most lenders but they're usually presented as a more complex product than loans in which fees and points are billed separately. Such "no fee" mortgages are described as having the origination fees "rolled into" the interest rate, so that a borrower pays a higher rate in exchange for avoiding upfront fees.

The CFPB essentially takes the opposite approach, that the no-fee loan is the simplest mortgage, and that consumers can reduce their rate by paying separate fees and discount points if they choose to do so.

Along with the requirement that consumers be offered a no-fee loan option, the CFPB put forward a proposed rule that consumers who choose to pay for fees or discount points up front must receive a bona fide rate reduction in exchange.

Limits on "steering" customers to pricier loans

Another proposed rule would implement part of the Dodd-Frank Act that bans the practice of basing a loan originator's compensation on the interest rate obtained or other terms of the loan. The rule is meant to eliminate a practice, once common during the housing bubble, where loan officers encouraged borrowers to take out loans with higher interest rates or other features than made them more costly than other loan products they were qualified for.

The proposed rules would also set uniform qualifications that all mortgage loan originators would have to meet. Currently, there are different requirements for originators working for banks, thrifts, brokerages and nonprofits; the new rules are intended to ensure that all meet the same minimum qualifications.

The rules will be posted for a 60 day public comment period through Oct. 16, 2012 before the CFPB finalizes the rules, scheduled to occur in January 2013.

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