More Government Hand Holding May be Coming...

The Consumer Financial Protection Bureau (CFPB) thinks that comparing mortgage offers is still too confusing for borrowers.  And since the CFPB agrees with all mankind that an upcoming Dodd-Frank provision against upfront fees such as discount points and origination fees is not consumer friendly, they are planning on using their exemption authority to rewrite part of those rules.


Unfortunately, they are considering a "Flat Fee" proposal which every mortgage banker and broker are against as well as more intelligent consumers.  See, while the CFPB understands that by eliminating discount points and origination fees the cost of mortgage credit will go up for everyone.  Because in most cases, if a lender or broker can earn fees directly from the borrower, they can in turn, pass a lower rate mortgage through to the borrower.


But what they don't seem to understand based on their Flat Fee proposal is that the compensation received from originating mortgage varies based on the loan amount.  Originators earn more for larger mortgages, as well as they should.  Does a Ford dealer earn as much on a car as a Mercedes Benz dealer?  No.  Should real estate commissions be the same no matter what the sales price of a home was?  No.


So why would a flat fee origination fee work in the mortgage business?


It won't.


It's really a shame that law makers feel they can abolish fair trade.  A simple regulation that forces originators to disclose 2 offers... one with discount points and one without... is that so difficult?  Am I missing something?


Here's what the director of the CFPB, Richard Cordray said -  “Mortgages today often come with so many different types of fees and points that it is hard to compare offers,We want to bring greater transparency to the market so consumers can clearly see their options and choose the loan that is right for them.” 


Transparency?  That word is brandished about like plastic patio furniture in a hurricane.  Transparency?  


Here's the conversation between myself and a borrower recently.  


BORROWER:  I'm not sure if I should pay discount points for that lower rate, Ron.  What do you think?
ME: How long do you think you will stay in this home, Mr. Borrower?

BORROWER:  Well, they're going to bury me here, Ron.

ME: Do you see any other reason that you might pay off this mortgage within the 1st 5 years or less?
BORROWER: Nope.. can't see how that would happen.  It would be nice if I end up living another 30 years with this same mortgage being that the rate is so low.
ME:  Well, you'll recoup the discount points in under 5 years because of the lower monthly payment.  Then you'll continue to have a lower monthly payment for the next 25 years.
BORROWER:  Sounds like you're suggesting I pay the discount points.
ME: It makes sense to pay discount points if you're holding the mortgage for more than 5 years.  And the longer you do, the more sense it makes.
BORROWER:  Okay, let's go with the points.
ME:  Agreed.
Was that really so hard that we need more regulations?  


Nanny state?  


It wouldn't surprise me if in 2025, all mortgage borrowers will be required to sit with a housing counselor (provided by the government) before they are allowed to take out a mortgage.