There are a lot of new laws on the books since the mortgage melt down this decade, HR 4173, the Dodd-Frank Wall Street Reform and Consumer Protection Agency, created the Consumer Financial Protection Agency and new regulations for the lending industry.

The act establishes the CONSUMER FINANCIAL PROTECTION AGENCY and requires the director to establish an Office of Financial Literacy; and Office of Financial Protection for Older Americans; and an Office of Fair Lending and Equal Oppurtunity.

The agency is directed to establish a single, toll-free telephone number for consumer complaints and inquiries concerning any institutions the various federal financial services agencies regulate.  Winning a lobbying battle, auto dealers, gyms and dentists are among those exempted from the act.

Of course, consumers are most interested in the provisions affecting home mortgages.  There will be two categories of home mortgages: "qualified" and "unqualified".  Financial institutions have incentive to create a qualified mortgage since in all "unqualified" loans, the lender: Qualified and unqualified mortgages. 

Highlights of Final Rules on Loan Originator Compensation and Steering:

The final rules protect mortgage borrowers from unfair, abusive, or deceptive lending practices that can arise from loan originator compensation practices.

The new rules apply to all persons who originate loans, including mortgage brokers abd the companies that employ them, as well as mortgage loan officers employed by depository institutions and other lenders.

The final rules, which apply to closed-end loans secured by a consumer's dwelling, will:

  • Prohibit payments to the loan originator that are based on the loan's interest rate or other terms.  Compensation that is based on a fixed percentage of the loan amount is permitted.
  • Prohibit a mortgage broker or loan officer from receiving paymnets directly from a consumer while also receviing compensation from the creditor or another person.
  • Prohibit a mortgage broker or loan officers form "steering" a consumer to a lender offering less favorable terms in order to increase the broker's or loan officer's compensation.
  • Provide a safe harbor to facilitate compliance with the anti-steering rule.  The safe harbor is met if:

* The consumer is presented with loan offers for each type of transactionin which the consumer expresses an interest (that is, a fixed rate loan, adjustable rate loan, or a reverse mortgage); and

 * The loan options presented to the consumer include the follwoing:

1. The lowest interest rate for which the consumer qualifies;

2. the lowest points and origination fees, and

3. the lowest rate for which the consumer qualifies for a loan with no risky features, such as a prepayment penalty, negative amortization, or a balloon payment in the first seven years.

The final rules are effective April 1, 2011, to provide lenders and originators time to develop new business models, implement necessary changes to their systems, and train personnel.

The Dodd-Frank Wall Street Reform and Consumer Protection Act also restrict practices concerning loan originator compensation.  The Reform Act includes provisions that are similar to the Board's final rules but also addresses other practices not covered by the final rules.  The Board plans to implement the Reform Act provisions in a future rulemaking with oppurtunity for public comment.


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