Loan officers will face restrictions on their ability to give borrowers high-cost mortgages under a new rule issued by the Consumer Financial Protection Bureau.
“Before the financial crisis, many mortgage borrowers were steered toward risky and high-cost loans because it meant more money for the loan originator,” Richard Cordray, the agency’s director, said in an e-mailed statement. “These rules will hold loan originators more accountable by banning the incentives that led so many of them to direct consumers toward disaster.”
The new rule issued today prohibits compensation that varies with the loan terms, so that an originator cannot earn more by getting a consumer into a loan with a higher interest rate, a prepayment penalty or higher fees.
It also bans so-called dual compensation, in which loan originators get paid by both the consumer and another entity, such as the creditor. It outlines eligibility requirements for loan officers, including character fitness, background checks and training requirements.
The CFPB decided not to proceed with an Aug. 17 proposal that would have required loan originators to offer a mortgage with no up-front discount points or origination fees. Instead, it will first take stock of how the various rules required under the 2010 Dodd-Frank Act affect consumer understanding of mortgages, according to an e-mailed statement.
The rule is one in a series the bureau has written in an effort to revamp mortgage lending practices. On Jan. 10, the bureau issued a final rule on underwriting standards for mortgages. Later this year, it is scheduled to complete a rule on simplifying mortgage disclosure forms.
David Stevens, head of the Mortgage Bankers Association, a lobbying group, said his organization could seek changes to the “tsunami of regulations” the consumer bureau has finalized recently.
“We look forward to engaging in detailed and thoughtful feedback and hope the CFPB is prepared to listen and make changes where they may have overlooked the impact of the nuance of some provisions,” Stevens said in an e-mailed statement.