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Will CFPB Policy Provide LESS Transparency to The Consumer?

By January 15, 2014January 17th, 2016QM-ATR, Regulations

QM is here and now we can start to sort out what is true and what is false based on many interpretations and opinions.  There are still several areas of the regulation that are not crystal clear to our industry.  Of course, as the GSE’s start purchasing these loans or not, we will find out at least what their opinions are regarding what makes a loan QM.  Additionally, as many of you go through an exam, we will get more information along the way.  As always, our entire front line staff plans on keeping our ear on your front lines to find out what is and is not working.  As I receive this feedback, I will pass along the information to help everyone.

This is my first area of concern as it relates to the protection of the consumer and the lender.

Issue:  If a lender bakes the LLPAs into the interest rate, are they allowed to show those adjustments to the originator?  If they show them, will the CFPB count them into the points and Fees?

I would say that our lenders are pretty split on this issue and the advice that they are getting.  On one hand the CFPB, GSE and Large Lenders say bake the LLPAs into the rate to get the “starting adjusted rate”; which is the Rate with all risk adjustments considered.  I like this because it gives the company a way to prove that everyone received fair and equal pricing.  And, with a quick trip back into the historical database or a pricing trace a lender can prove that on any file.  It keeps everyone honest, consumers protected and lenders protected.

Also, by doing it this way it tells me that the CFPB wants the company to set the final Rate/Price so that the originator has no power to set the Rate and Price.  This trumps the “old way” of giving the pricing sheet and adjustments and telling the LO to figure it out; and it removes the employee making commission, from setting the Rate/Price.

I think we all get that.  So if we are following this practice, why would displaying the reasons why a consumer could not get the lowest rate be an issue?  After all, the Loan originator cannot change it as it is merely there for educational purposes.  If I was that consumer I would want the bureau protecting my interest, to advocate transparency so that I know why.  Yet, many lenders are being told that if they display this information (despite the fact that it is already in the rate and cannot be changed), the examiner will put the risk adjustments into the points and fees calculation.

So, I ask the CFPB this.  Is it better for the consumer to have complete transparency and know why, or should we just keep them in the dark and shrug our shoulders? Either way it will cost the consumer the same, but with transparency we have now provided them with education versus ignorance.  In what may be the largest financial transaction of their life, Ignorance is not Bliss. I for one, think the consumer has a right to know why and I would love to know your opinions!!

Tammy Butler, Master CMB

Author Tammy Butler, Master CMB

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