The housing crisis of the last decade didn't happen because consumers knowingly took our mortgages they couldn't pay. Many were led into risky mortgages by loan originators who had financial incentives to sell high-cost loans.
The Consumer Financial Protection Bureau (CFPB) is trying to keep that from happening again. It's issuing new rules that ban certain incentives that loan originators had to sell unsafe loans to consumers in the run-up to the financial crisis.
“Before the financial crisis, many mortgage borrowers were steered towards risky and high-cost loans because it meant more money for the loan originator,” said CFPB Director Richard Cordray. “These rules will hold loan originators more accountable by banning the incentives that led so many of them to direct consumers toward disaster."
Mortgage loan originators – loan officers and mortgage brokers – generally present different kinds of loans to consumers depending on the consumer’s needs. Consumers can work with multiple loan originators to compare the offers that the loan originators obtain from creditors.
In the run-up to the housing crisis, unscrupulous mortgage loan originators too often led prospective homebuyers into risky and high-priced loan terms because they would generate higher compensation for themselves.
The Federal Reserve Board, and then Congress through the Dodd-Frank Wall Street Reform and Consumer Protection Act, took important steps to limit these unscrupulous loan origination practices. The CFPB is finalizing the regulations governing how loan originators are compensated.
Full details are available on the CFPB site.