Consumer Bureau Brings In Rules For Risky Mortgages

The Consumer Financial protection Bureau has suggested several rules for the risky

mortgages with high rates or risky terms and conditions in order to save the borrowers. The governments consumer watchdog tends to enable majority of people to qualify for the protections provided by the Home Ownership and Equity Protection Act by increasing the domains of high cost mortgages.

According to this new rule, the APR and fee thresholds for the risky mortgages have been altered to include more loans. This rule will also have many more policies to safeguard the consumers and to prohibit several features which could be risky for these mortgages. It might also prohibit the balloon payments, which refer to the policy, where the borrower has to return off the loans principal a handsome lump at the end of the term of the loan, instead of small installments throughout the term for the highly expensive mortgages. Prepayment of fees, or any form of fees associated with altering or deferring loans, caps or the late fees are also denied by the Consumer financial protection bureau. Moreover, the borrowers will also have to attend a homeownership counseling session before opting for the mortgage.

At present, the highly expensive mortgages constitute only a negligible percentage of the overall mortgages. Thus, only 36,000 loans were taken into account under the HOEPA protections in between 2004-2010.

The CFPB makes it understandable and comparable for the consumers:

Currently the CFPB is emphasizing on public opinions largely regarding this proposal until Sept 7, and thereby the final norms will be issued only after January 2013.

Along with the high cost mortgage rule, simultaneously CFPB has also suggested the latest versions of two simplified mortgage disclosures on Monday. By doing all these CFPBI is primarily aiming to simply these forms in order to make it understandable and comparable for the consumers, so that they can examine the costs as well as the terms and conditions of these mortgages.

The Loan Estimate form is the summarized form of the expenses and risks of a mortgage, and the Closing Disclosure offers the final terms of loan and the closing costs. The former is about three pages long, down from the current 7 pages, while the later is about 5 pages long down from about 9 pages. CFPBI also proposes further that the lenders should hand over the estimate form within 3 days of requesting, while the consumers are to receive the closing disclosure three days before the closing day of loan.

Several prototypes of these forms have been released and circulated among the consumers to be reviewed and commented, before the issuing of the actual norms.

by: Michael Costa

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