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CFPB Finalizes High-Cost Mortgage Rules

After issuing a ""finalized qualified mortgage"":http://dsnews.comarticles/cfpb-releaes-long-awaited-qualified-mortgage-rule-2013-01-10 (QM) rule on Thursday, the Consumer Financial Protection Bureau (CFPB) also released its guidance on rules to protect consumers of ""high-cost mortgages"":http://files.consumerfinance.gov/f/201301_cfpb_high-cost-mortgage-rule_what-it-means-for-consumers.pdf.

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High-cost mortgages include mortgages with an annual percentage rate (APR) or points and fees that exceed certain threshold amounts. For example, a first mortgage with an APR that is more than 6.5 percentage points higher than the average prime rate would be considered high-cost. Through the Home Ownership and Equity Protection Act (HOEPA), consumers with these high-cost mortgages are provided certain protections.

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For borrowers with high-cost mortgages, the bureau's final rule bans potentially risky features such as balloon payments (with some exceptions) and penalties for borrowers who pay off loans early.

The rule also bans and limits certain fees and practices, such as fees for modifying loans and fees for requesting a payoff statement. Borrowers also can't be charged late fees that are higher than four percent of their monthly payment. Certain ""bad"" practices are also banned, such as encouraging borrower to default so they can be refinanced into a high-cost mortgage. Consumers who decided to take out a high-cost mortgage are also required to receive housing counseling.

HOEPA's protections for high-cost mortgages cover first mortgages for homes, loans to refinance, and a home equity loan or home equity line of credit (HELOC). The protections for high cost mortgage begin January 2014. HOEPA does not apply to reverse mortgages.

""Addressing problems in the mortgage market is critical to helping our economy recover,"" said CFPB director Richard Cordray, in a statement. ""Today's changes will better help consumers to understand the real costs of owning a home while protecting them from harmful practices that can trap them into high-cost mortgages.""

The CFPB also established another rule for ""escrow accounts"":http://files.consumerfinance.gov/f/201301_cfpb_escrow-requirements-rule_what-it-means-for-consumers.pdf that states escrow accounts must be established for at least five years for certain higher-priced mortgage loans. However, the bureau noted certain creditors in rural or underserved areas are exempt from the rule in an effort to preserve credit.

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