If you’ve been following Ben Bernanke’s testimony on the Hill this week, you may have noticed him hinting about significant proposed changes to Reg Z and changes in how mortgage originators are compensated, leaving many of us in the industry wondering “what now”. Don’t get me wrong, Reg Z could use some tweeking…it’s just that the mortgage industry is in a state of constant change (evolution?) with a deluge of new forms and/or regulations including MDIA, HVCC and the new Good Faith Estimate which goes into effect on January 1, 2010.
From this morning’s Press Release:
“Our goal is to ensure that consumers receive the information they need, whether they are applying for a fixed-rate mortgage with level payments for 30 years, or an adjustable-rate mortgage with low initial payments that can increase sharply,” said Governor Elizabeth A. Duke. “With this in mind, the disclosures would be revised to highlight potentially risky features such as adjustable rates, prepayment penalties, and negative amortization.”
Closed-end mortgage disclosures would be revised to highlight potentially risky features such as adjustable rates, prepayment penalties, and negative amortization. The Board’s proposal would:
- Improve the disclosure of the annual percentage rate (APR) so it captures most fees and settlement costs paid by consumers;
- Require lenders to show how the consumer’s APR compares to the average rate offered to borrowers with excellent credit;
- Require lenders to provide final Truth in Lending Act (TILA) disclosures so that consumers receive them at least three business days before loan closing; and
- Require lenders to show consumers how much their monthly payments might increase, for adjustable-rate mortgages.
The Board will also work with the Department of Housing and Urban Development to make the disclosures mandated by TILA, and HUD’s disclosures, required by the Real Estate Settlement Procedures Act, complementary; potentially developing a single disclosure form that creditors could use to satisfy both laws.
In developing the proposed amendments, the Board recognized that disclosures alone may not always be sufficient to protect consumers from unfair practices. To prevent mortgage loan originators from “steering” consumers to more expensive loans, the Board’s proposal would:
- Prohibit payments to a mortgage broker or a loan officer that are based on the loan’s interest rate or other terms; and
- Prohibit a mortgage broker or loan officer from “steering” consumers to transactions that are not in their interest in order to increase the mortgage broker’s or loan officer’s compensation.
Clarity and transparency for consumers is a must with the mortgage process. I’m not sure what to make of this line: “Prohibit payments to a mortgage broker or a loan officer that are based on the loan’s interest rate or other terms“. Mortgage rates are increased or decreased based off of paying points which includes the mortgage originators compensation. Perhaps the FOMC would like to see mortgage originators be paid hourly instead of based off of rate…I’m all for that! 🙂