This is the fourth part of a five part series that explores issues related to discount points. The previous article considered how unearned discount points could result in fair lending violations. This part provides a glimpse of how changes to Regulation Z will change how discount points are handled in the future.
On August 17, 2012, the Consumer Financial Protection Bureau (CFPB) proposed two revisions to Regulation Z to implement provisions of the Dodd-Frank Act that restrict discount points.
- First, the consumer must be offered an alternative loan that does not include discount points and origination points or fees (the zero-zero option).
- Second, the borrower must receive a bona fide reduction in the interest rate of the loan with discount points compared to the interest rate on the alternative loan without discount points.
The two revisions play off one another. The first revision provides a measure to assure compliance with the second revision. If a lender quotes an interest rate of 5% with one discount point, it must also a zero-zero option. The zero-zero option might provide for a rate of 5.25% with no points. Here the lender is quoting the required zero-zero option and that option demonstrates that the discount points are earned and bona fide and reasonable.
The purpose of the revision is to protect consumers while allowing lenders to continue offering mortgages with discount points. Comments on the proposal were due by October 16, 2012. A final rule is expected by January 21, 2013.