Mortgage News for Massachusetts Consumers
As a Massachusetts bankruptcy attorney, we get calls from clients and potential clients with mortgage questions all the time. Calls from folks who are refinancing in Massachusetts are perhaps the most common these days, but so are calls from folks who are buying their first house, including rental properties. Thus, we try to keep Massachusetts consumers apprised of new developments coming out of Washington or the Massachusetts State House. Fortunately, there is some good news in the name of public disclosures for consumer protection.
The federal Consumer Financial Protection Bureau announced that it would consider new regulations for the simplification of mortgage information on all new mortgages. This applies to mortgages throughout the United States, including here in Massachusetts. Akin to the “nutritional information” required on food packaging, the CFPB is attempting to standardize the information provided.
The proposals are derived from the federal Dodd Frank Act which requires that regulations be implemented on or before next January, 2013.
Among the proposals are regulations to reduce the interest rate on mortgages when consumers prepay points. Points, or a “point” of interest, are monies paid upfront to the lender. For example, if you are taking out a $200,000 loan, and you prepay two “points” you are paying $4,000 to the lender. This proposal would require the lender to reduce the interest rate in exchange for this $4,000 prepayment. The reason for this proposal is because often “points” are simply fees, which is unfair.
Another proposal is to require each lender to offer every consumer a “no discount point option” so that consumers can compare apples to apples. The reasoning behind this is because lenders seem to have so many menu items: no points, but fees; discounts but points; etc. Thus, every loan proposal would also include this option, so consumers could compare exactly the same conditions from each lender he or she applied to.
The CFPB also has a proposal that would ban loan origination fees that are derived from the amount of the loan. Consumers often misunderstand these origination fees because they are often called “origination points” so consumers think they are reducing the cost of their mortgage by prepaying the point.
Qualifying all mortgage loan originators is another regulation that the CFPB is considering. This is aimed at the shady loan brokers. The rule would apply, of course, to all loan originators, such as banks, credit unions, mortgage brokerage firms, and non-profit mortgage originators. The fraud and deceptive practices of the 2000s, including the “no paper” mortgages, would be reduced under this type of ruling.
In addition, the proposal would require “character and fitness” tests, criminal background tests and minimal training for all loan originators. The Dodd-Frank law, which created the CFPB and was drafted partially in response to the mortgage crisis of 2008, and operates through the Federal Reserve Board. The agency was the brainchild of Massachusetts Senate Candidate Elizabeth Warren, who has a Small Business Review Panel process allowing Massachusetts businesses, including the vital loan originators, to provide input for this process.