The Consumer Financial Protection Bureau (CFPB) can be called many things, but lazy isn’t one of them.
After announcing new standards for residential mortgages and regulations for mortgage servicers, the agency was back at it again late last week, instituting new rules for how creditors handle home appraisals and how loan officers and brokers are compensated. Like its earlier rules, they will take effect January 2014.
CFPB Rules Apply for Appraisals Emphasize Communication
As the CFPB explained on its website, its new rules for appraisals work very much in the same vein as its mortgage servicing rules:
- Creditors must now notify mortgage applications of their right to receive copies of appraisals developed within three business days of receiving the application.
- Similarly, creditors must provide copies of appraisals and written valuations at least three business days before the closing.
- Finally, creditors are no longer allowed to charge for copies of appraisals and written valuations, though creditors are still allowed to chart applicants fees for the cost of the appraisal itself.
So the rules, as explained CFPB Director Richard Cordray, target not the appraisal process itself, but how lenders communicate with consumers about the appraisal process.
“This rule will guarantee consumers can receive important information on how a lender determines the value of the home,” Cordray said. “Having this information available promptly makes it easier for loan applicants to make informed decisions.”
Broker/Loan Officer Rules Prohibit Mortgage Steering
The CFPB’s rules for mortgage brokers and loan officers, though, are more proactive, in that they explicitly prohibit mortgage originators from “steering” borrows into risky and high-cost loans; during the housing bubble, such mortgage steering was widespread in some markets, with originators steering homebuyers into riskier loans that were easier to sell to Wall Street banks.
The agency’s rules prohibit mortgage steering mainly through removing its incentives: originators can no longer receive payment from both the consumer and other parties; they can no longer obtain compensation plans that fluctuate with the terms of the loan; they cannot receive higher payment for securing higher interest loans (or loans with higher fees); and finally, incentives to buy certain loans, such as title insurance from a lender affiliate, are no longer tied to originator compensation.
As he indicated in comments about the agency’s mortgage servicing laws, Cordray said these laws rectify lingering issues from the housing bubble years.
“Before the financial crisis, many mortgage borrowers were steered towards risky and high-cost loans because it meant more money for the loan originator,” Cordray said. “These rules will hold loan originators more accountable by banning the incentives that led so many of them to direct consumers toward disaster.”