CFPB could limit mortgage origination fees

Thursday, May 10th, 2012 By

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The CFPB is looking at mortgage fees associated with closing costs in home sales. Photo Credit: MichaelW1996/Flickr.com/CC-BY

The latest item the Consumer Financial Protection Bureau is considering action on is mortgage fees, specifically mortgage origination fees. The CFPB hasn’t committed to limiting the fees, but it is investigating whether to do so.

Loan origination an item of concern

The Consumer Financial Protection Bureau, according to Businessweek, has announced that the next aspects of consumer finance the agency is interested in examining are origination fees and discount points from mortgage lenders.

Origination fees are the finance charges a mortgage lender charges the borrower for providing the funds; discount “points” are a percentage of the interest a borrower pays up front. One point is 1 percent of the amount of money paid to the lender in interest.

CFPB head Richard Cordray said in a statement that not all lenders use the same terminology and that offers can be misleading. The goal of any action taken would be to either reduce the fees or make mortgage offers more simple to understand.

A sometimes mandatory option

Part of the legal mandate creating the CFPB, according to the Los Angeles Times, included a clause dictating that the agency look at fees associated with mortgages, including origination and discount fees.

Discount fees aren’t always mandatory up front; often a lender reduces the interest rate for a certain number of points paid before closing. Some lenders require a certain amount of discount points, in effect creating another mortgage fee.

The CFPB is making suggestions about what might be done. For instance, according to Businessweek, the CFPB might consider banning origination points altogether so banks don’t push consumers into loans that are larger than they want or need. However, according to Daily Finance, a flat fee might still be allowed for loan origination.

The CFPB may also mandate banks reduce the interest rate if any discount points are paid or create a rule mandating mortgage lenders offer mortgages without discount points.

Fees can add up

The fees involving in closing costs, or the costs involved when a mortgage “closes” and a buyer purchases a home, can be considerable.

In 2011, according to Bankrate.com, the national average origination fee for a mortgage was $1,614, a 10.3 percent increase over the average of 2010. The national average total closing cost for a mortgage of $200,000 was $4,070, meaning origination fees are roughly 40 percent of closing costs. Third-party fees, such as the cost of the appraisal and title fees, were an average of $2,456.

Sources

Businessweek

Bankrate

Los Angeles Times

Daily Finance: http://www.dailyfinance.com/2012/05/10/consumer-watchdog-weighs-limits-to-mortgage-fees/

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