The Consumer Financial Protection Bureau and Consumer Mortgage Protection
We have
all been witness to the financial crisis of the past 18 months. Tightening
credit limits, tougher standards for mortgages and consumer loans, job losses –
we all know at least one person who has been directly impacted. Just about a
year ago, in an effort to create a government regulatory agency to protect
consumers from unfair or ‘shady’ lending practices, President Obama introduced
a law to Congress to establish what was then referred to as a Consumer
Financial Protection Agency. After a year of discussion and debate, the house
and senate have finally passed the legislation, which now looks to become a
reality once signed by the President.
One of the
primary objectives of the new agency, or Bureau (CFPB), is to more strictly
regulate mortgage-lending practices, providing consumers with more transparency
around the transaction, especially in terms of the revenues earned between the
lender and the mortgage broker. One of the key proposed changes would be that
commissions paid from a lender to a broker would no longer be able to be based
on the interest rate of the loan. Historically known as the yield spread
premium, consumer advocacy groups and lawmakers alike associate the practice
with consumers being steered into higher rate loans, providing the brokers with
increased revenues earned from the transaction. It seems so obviously wrong,
doesn’t it? Interestingly enough, the National Association of Mortgage Brokers
opposes the terms of the proposed reform, countering that it would limit the
ability for consumers to secure any time of low-cost financing. In fact, the
new reform would prevent any commission percentages tied to the terms of the
loan, aside from the principal amount.
Additional
key elements of the bill impacting the mortgage industry and consumers include:
- A requirement for lenders to ensure that the borrower
has the ability to repay the loan through a federal standard
- Accountability and financial penalties to lenders and
mortgage brokers for unfair lending practices
- Additional disclosure provisions to the consumers regarding
the maximum amount they could have to pay on all variable rate mortgages
- Counseling assistance for consumers through a newly
established Office of Housing Counseling within HUD
Critics
continue to find flaws or holes within the proposed Bureau, but if nothing is
obvious from the real estate market and financial practices of the past few
years, lending institutions cannot be left to their own accord for
self-regulation. The creation of the Bureau and the regulations associated with
it represent the largest reform to mortgage rules in the U.S. since the 1930s
and, in my opinion, it’s about time.
Posted on 07/16/2010 in Mortgage | Comments (0)
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