New Rules May Rid Mortgages of Some Hidden Fees

The Consumer Financial Protection Bureau (CFPB) said it planned to propose tighter mortgage lending regulations that would limit the ability of banks and mortgage brokers to charge certain transaction fees, possibly ending one of the most abusive costs levied on consumers when they buy a house.

Bureau officials said that the rules, which were released Wednesday ahead of formal introduction this summer, would ban mortgage companies from charging origination fees that vary with the amount of the loan.

Those fees are sometimes referred to as origination points and are disclosed in a blizzard of documents and fees that most home buyers face at closing. But they can easily be confused with the upfront discount points that borrowers often pay to secure a lower interest rate.

The consumer bureau also said it would require that lenders offer a reduced interest rate when a consumer opted to pay upfront discount points and would require lenders to offer a loan option without points. During the financial crisis, some lenders charged the points without lowering the interest rate.

Changing that rule, the bureau believes, will make it easier for consumers to weigh offers from multiple lenders.

“Mortgages today often come with so many different types of fees and points that it can be hard to compare offers,” Richard Cordray, the director of the consumer bureau, said. “We want to bring greater transparency to the market so consumers can clearly see their options and choose the loan that is right for them.”

Consumer bureau officials said that unscrupulous mortgage lenders sometimes tried to disguise origination fees by calling them origination points. Expressed as a percentage, the origination fee paid then varied with the amount of the loan.

But bureau officials said that because the fees covered paperwork that was the same whether the loan was for $100,000 or $1 million, they were proposing that mortgage brokers and creditors be allowed to charge only flat origination fees. That in turn will promote competition among mortgage lenders and brokers and lower consumer charges, the officials said.

This appears to be the next step for the CFPB in their effort to drive transparency for consumers. What do you think should be the next move?