Mortgage Protection Rules

New rules from  the  Consumer Financial Protection Bureau  (CFPB) will  go a long way toward eliminating risky mortgages, and the possibility that high pressure tactics will lead you to get a mortgage you can’t afford. 

Loan officers, mortgage brokers and others who initiate mortgages often give you  a choice of options for mortgages.  We explain all the choices in our videos “How Do I Shop For a Mortgage,” and “Mortgage Fees.”  

The problem is that before the mortgage crisis unscrupulous loan initiators often steered consumers to high fee loans because they made more money that way.  Most of the  rules, which  go into effect January, 2014 will ban the questionable practices.

Here’s what the rules will do:

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.
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 that require a more level playing field so consumers can be confident that originators are ethical and knowledgeable. The final rules generally 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.

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Barbara Nevins Taylor

As the winner of 22 Emmy Awards and a slew of journalism honors and awards, I created ConsumerMojo.com to give you the straight story about complicated stuff. Tell us what you want to know and we'll get you the answers.