Consumer Bureau Proposes Mortgage Rules
Rules Aim To Protect Against Mortgages With High Rates, Risky Terms
POSTED: 5:41 pm MDT July 9, 2012
UPDATED: 6:36 pm MDT July 9, 2012
NEW YORK (CNNMoney) -- The
Consumer Financial Protection Bureau proposed rules Monday aimed at
protecting more borrowers from getting stuck with mortgages carrying
high rates and fees or risky terms.The government's consumer
watchdog is seeking to allow more consumers to qualify for the
protections offered by the Home Ownership and Equity Protection Act
(HOEPA) by expanding the definition of what qualifies as a "high-cost
mortgage." It's also offering more safeguards for these borrowers.Under
the CFPB's proposed rule, which was mandated by the Dodd-Frank Act in
2010, the APR and fee thresholds for "high-cost" mortgages have been
modified to include more loans.
The proposed rule would also add more
protections and prohibit certain risky features for these mortgages.
The new rules generally ban balloon payments -- where a borrower pays
off the loan's principal in a large, lump sum payment at the end of the
loan term instead of making smaller payments throughout the term -- for
high-cost mortgages. It also prohibits prepayment fees, as well as any
fees associated with modifying or deferring loans, and caps late fees.
Borrowers are also required to receive homeownership counseling before
taking out a mortgage.Currently, high-cost mortgages make up a
tiny fraction of overall mortgages. Between 2004 and 2010, only 36,000
loans were made that qualified under the HOEPA protections.The CFPB is accepting public comment about the proposal until Sept. 7, and final rules will be issued in January 2013.'Know
before you owe': In addition to its "high-cost" mortgage rule, the CFPB
also proposed new versions of two simplified mortgage disclosure forms
on Monday.As part of its "Know Before You Owe" project, the CFPB
is attempting to simplify these forms in an effort to make it easier for
consumers to understand and compare the terms and costs of mortgages."When
making what is likely the biggest purchase of their life, consumers
should be looking at paperwork that clearly lays out the terms of the
deal," CFPB Director Richard Cordray said in a statement. "Our proposed
redesign of the federal mortgage forms provides much-needed transparency
in the mortgage market and gives consumers greater power over the
exciting and daunting process of buying a home."The Loan Estimate
form, which presents the costs and risks of a mortgage, is three pages
long, down from the current 7 pages. Meanwhile, the Closing Disclosure,
which contains final loan terms and closing costs and is given to
borrowers before they close on a home, is five pages -- down from about
nine pages.The proposal would also require lenders to give
consumers the loan estimate form within three days of requesting it, and
consumers must receive the closing disclosure three days before closing
on the loan.The CFPB has released several prototypes of these
forms over the past 18 months. The latest versions released on the
CFPB's website Monday come after 10 rounds of testing with consumers and
industry members and tens of thousands of comments.The public
will have until Nov. 6 to review and provide comments for most of the
proposal, though comments about certain sections are due Sept. 7. The
CFPB will issue the final rules regarding the form after reviewing these
comments.
Copyright CNN 2012
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