January’s National Mortgage News Compliance Matters blog post, written by Fred Gooch, general counsel and vice president of Compliance, centered on the largest milestone of the Consumer Financial Protection Bureau (CFPB) since its inception in January 2011. On January 10, Qualified Mortgage (QM) and the Ability-to-Repay rules were announced, mandating that lenders must make a good faith assessment of a borrower’s ability to repay to ensure the borrower can pay back their mortgage over the agreed terms before they sign any document.
Following the announcement of the two rules on January 10, the CFPB announced the proposal of an additional seven rules in efforts to revitalize the housing market and reestablish confidence in the average consumer seeking a mortgage. However, some industry experts are weary the plethora of rules and new details will continue to confuse consumers, cause lenders to freeze and further delay the housing recovery.
The roles originators, mortgage brokers, loan officers and brokers play in the origination process were called into question when the financial meltdown occurred. The CFPB’s LO Comp reform seeks to curtail the misconception of these professions by establishing industry-wide qualification standards for originators in attempts to ease predatory lending, gaining the consumer’s trust back and enabling a transparent relationship between the lender and borrower.
A proposal aimed to clarify a consumer’s upfront charges and loan interest rates has the potential to change the way lenders process transactions and current pricing practices. Consumers are frequently misinformed about how their mortgage loan originator (MLO) is being compensated for their work. The CFPB has announced that if originators present the borrower with comparable, alternative loans for which they are deemed qualified, the originator will continue to receive upfront points and/or fees.
The CFPB also announced that a certain set of tests, ethics and practices will be adopted to set high industry-wide standards to distinguish lender stature, as well as to increase the positivity of a lender’s code of ethics. Qualification standards will implement a regarded and ethical lending procedure, improving the public’s view of the lending industry and originators.
The multitude of rules has many industry insiders fearing a regulatory cliff if all rule implementation will simultaneously commence. If ample time is given to industry leaders to implement each individual rule, the rules have the ability to transform the mortgage industry from post-crisis to recovery and rebuilding.
Mr. Gooch’s posts are available at the beginning of each month online at www.nationalmortgagenews.com