Consumer bureau lays out new mortgage-lending standards

Mortgage lenders would have to offer a straightforward, no-frills loan to qualified borrowers under new rules proposed by the Consumer Financial Protection Bureau (CFPB).

A new proposal released by the CFPB Friday also would require lenders to offer potential homeowners some sort of benefits in exchange for paying up-front fees or "points" when they borrow to buy a home.

“Consumers have a hard time comparing loans when they are dealing with a bewildering array of points and fees,” said CFPB Director Richard Cordray. “We want to provide consumers with clearer options and enable them to choose the loan that they believe is right for them.”

The bureau maintained that borrowers can often be bewildered by the range of complicated options available when seeking a home loan, and as a result is pushing for rules that would require lenders to provide borrowers with the option of one loan free of special fees or other features. If a homeowner is unlikely to qualify for that plain vanilla loan, the lender does not have to offer it under the CFPB's proposal.

Furthermore, the bureau's proposal would implement a piece of the Dodd-Frank financial reform law that bans the practice of "steering incentives" for home loan originators. Those incentives oftentimes paid loan providers higher amounts for steering borrowers to mortgages that ultimately cost consumers more. The new proposed rule builds on a similar rule proposed by the Federal Reserve in 2010.

The bureau's new rules would also set a standard set of heightened requirements for originators of home loans. All lenders would be required to meet one set of character and fitness requirements, and would also be subject to a criminal background check. Originators would also be required to meet minimum training requirements.

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