The Consumer Financial Protection Bureau (CFPB) declared a new set of rules and regulations to protect potential buyers from being trapped into faulty loans and mortgage schemes in early January 2013. Following the previous rules, CFPB has come up with another set of regulations for loan officers and mortgage brokers that could lead to many of them leaving the market.
The new rules prohibit mortgage brokers from steering borrowers toward high-interest loans and also forbid them to rake in any kind of commission from both the lending and borrowing parties. Moreover, loan officers will not be paid if the borrower agrees to purchase other services like title insurance from their affiliates, reports Market Watch.
The CFPB rule will also ban the practice of increasing the total loan amount to cover credit insurance premiums, reports Housing Wire.
Apart from the prohibitive rules, mortgage brokers will now have to pass eligibility standards depending on their nature of work. The standards require the broker to pass fitness requirements and character and background checks. Additionally, loan officers are required to undergo training to guarantee complete knowledge of loan rules prescribed by the government, reports National Mortgage Professional.
"Before the financial crisis, many mortgage borrowers were steered toward risky and high-cost loans because it meant more money for the loan originator, these rules will hold loan originators more accountable by banning the incentives that led so many of them to direct consumers toward disaster," CFPB director, Richard Cordray, told Housing Wire.
However, NAMB - The Association of Mortgage Professionals expressed its outrage at the new rules.
"This is the very opposite of the CFPB's purpose. This rule will destroy competition by eliminating the ability of small business mortgage brokers to compete with larger creditor lenders," president of NAMB, Donald J. Frommeyer, told National Mortgage Professional.
According to the executives at NAMB, the new rules will wipe out competition and make operation of small business units impossible.
In a broader view, if mortgage brokers are wiped out from the home financing community, buyers will have to deal with added difficulties. Most buyers consult a mortgage broker for advice on interest rates and mortgage schemes.
However, in the past few years, mortgage brokers have led buyers to high interest loans that they failed to repay. This partly triggered off the housing sector's decline and led the CFPB to introduce the new limitations, reports The Wall Street Journal.
All the independent brokering firms have been advised to adhere to the rules and adopt the changes by the coming year, reports WSJ.
