Consumer bureau proposes rules for risky, high-cost mortgages

by 09 Jul 2012

(CNNMoney) -- The Consumer Financial Protection Bureau proposed rules Monday aimed at protecting more borrowers from getting stuck with mortgages carrying high rates and fees or risky terms.

The government's consumer watchdog is seeking to allow more consumers to qualify for the protections offered by the Home Ownership and Equity Protection Act (HOEPA) by expanding the definition of what qualifies as a "high-cost mortgage." It's also offering more safeguards for these borrowers.

Under the CFPB's proposed rule, which was mandated by the Dodd-Frank Act in 2010, the APR and fee thresholds for "high-cost" mortgages have been modified to include more loans.

The proposed rule would also add more protections and prohibit certain risky features for these mortgages. The new rules generally ban balloon payments -- where a borrower pays off the loan's principal in a large, lump sum payment at the end of the loan term instead of making smaller payments throughout the term -- for high-cost mortgages. It also prohibits prepayment fees, as well as any fees associated with modifying or deferring loans, and caps late fees. Borrowers are also required to receive homeownership counseling before taking out a mortgage.

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Should CFPB have more supervision over credit agencies?