Mortgage Rates Uncertain as Industry Prepares for 7 New CFPB Rules

By Gretchen Wegrich

While the mortgage industry has traditionally been slow to adopt new regulations, January 2013 welcomes not one but seven new mortgage/servicing rules, courtesy of the Consumer Financial Protection Bureau. Although the rules will not be enforced immediately, regulations are expected to take effect no later than January 2014. It is unknown how the new rules will affect mortgage rates.

The new rules represent a new era in mortgage consumer protection. Included in the new regulations is the qualified mortgage (ability to pay) rule, a mandate relating to high-cost mortgages, a rule regulating loan officer compensation, new standards of servicing, a escrow rule regarding impounding accounts and tax insurance, an appraisal disclosure rule and yet another appraisal guideline linked to high-cost mortgages.

“Millions of homeowners are struggling to pay their mortgages, often through no fault of their own,” said CFPB Director Richard Cordray in a release. “These proposed rules would offer consumers basic protections and put the ‘service’ back into mortgage servicing. The goal is to prevent mortgage servicers from giving their customers unwelcome surprises and runarounds.”

The new rules are the result of the CFPB's authority to implement and refine the Dodd-Frank Wall Street Reform and Consumer Protection Act. The Dodd-Frank Act also granted the CFPB the power to fix the mortgage market by creating additional rules.

The seven rules were created with input from consumer groups, small servicers, other industry stakeholders, and various government agencies.

In the mortgage industry, the start of the new year included several encouraging signs, including the fiscal cliff compromise and the inclusion of an extended Mortgage Debt Forgiveness Act and tax benefits to help homeowners with private mortgage insurance. Excluded from the fiscal cliff deal was mortgage interest tax deduction, a key provision that may reappear in later deficit discussions this year.

For mortgage professionals and borrowers alike, the soon-to-be-released qualified mortgage rule will have great leverage, defining mortgage underwriting standards and consumers’ ability-to-repay.

Once activated, the rule will necessitate adjustments within the mortgage industry as mortgage companies, settlement companies and professionals in the mortgage finance space begin putting into place the required changes. Industry insiders such as Edward Kramer, executive VP of regulatory affairs for Wolters Kluwer Financial Services, say they are unsure how long it will take to fully implement the new regulations, but that hiring new staff is expected to ease the burden of compliance.

“Everyone knows they have to gear up,” said Kramer. “It’s an enormous burden for the mortgage industry.”

Once the Qualified Mortgage standard is enacted, the mortgage industry must also embrace other rules, such as the qualified residential mortgage (risk-retention rule), which is expected to impact both mortgage lending and the secondary market.

Mortgage professionals everywhere are concerned about enacting systems of compliance to meet the new regulations.

In regards to the Qualified Mortgage rule, mortgage professionals say that a lending safe-harbor provision would be a practical inclusion by the CFPB. For borrowers and lenders alike, the biggest fear is that the new rules could damage housing market recovery.

"The victim of this will be the housing recovery if it is not done properly," said David Stevens, chief executive officer of the Mortgage Bankers Association. 

While industry professionals await the final drafts of the new rules, many question just what exactly the rules will be, what sort of time frame companies will have to enact the rules, and how the rules may contradict each other. In many ways, 2013 is a year to embrace change within the mortgage industry.

Gretchen Wegrich

Gretchen Wegrich is an editor at Lender411. She specializes in mortgage basics, personal finance and green living. She graduated with a bachelor's degree in writing from University of California, San Diego and previously worked at the Santa Cruz Sentinel. Contact her at gretchen@lender411com.