CFPB Considers Proposals Affecting Originator Compensation and Qualification
by Marissa Aquila Blundell, Esq.
Sr. VP & General Counsel
The Consumer Financial Protection Bureau (CFPB) has begun to publish press releases highlighting policies under consideration in advance of its issuing proposed rules. Based on the timelines mentioned by the CFPB in these press releases, it appears that the industry should expect the rule-making process, consisting of the issuance of a formal proposal, a comment period, and then the issuance of a final rule to take place on a tight timeline.
Most recently, on May 9, 2012, the CFPB issued a press release outlining rules under consideration which will simplify mortgage points and fees, further reform originator compensation practices, and standardize loan originators’ qualifications. The proposed rules will implement additional requirements set forth in the Dodd-Frank Wall Street Reform and Consumer Protection Act.
Prior to issuing its formal proposed rules, the CFPB will engage with the industry through use of the Small Business Review Panel, among other methods. The Small Business Review Panel is comprised of small financial service provider representatives and will issue a report to be considered by the CFPB when formulating its proposals.
The CFPB’s formal proposals are expected this summer, a comment period will follow, and final rules are expected by January 2013; therefore, the mortgage lending community should take advantage of the advance opportunity to organize, mobilize, and provide responses to these important policy considerations.
Proposals under consideration affecting mortgage points and fees include:
- Prohibiting upfront points and fees except for discount points which result in a minimum reduction of the interest rate and origination points which are flat and do not vary with loan amount
- Sunsetting the limited exceptions under consideration to eliminate upfront points and fees altogether in transactions with creditor-paid loan originator compensation
Proposals under consideration affecting mortgage loan originator compensation include:
- Interpreting the prohibition of dual compensation consistent with the Federal Reserve Board’s earlier loan originator compensation rule in order to allow salaries or wages to be paid to individual employees of brokerages
- Implementing the prohibition of compensation based on terms or conditions of a loan (other than loan amount) in transaction for which compensation is consumer-paid
- Clarifying which contributions or payments by employers based on company profits are permissible
- Allowing mortgage loan originators to make certain pricing concessions to cover unanticipated increases in their-party settlement charges under certain circumstances
- Clarifying that point banks are considered “compensation” and are permitted only if the amount of the contribution by the creditor for a given transaction is not based on the transaction’s terms or conditions, and the creditor contribution is fixed over time
- Providing a test to determine whether a factor is a “proxy” for a loan term
Proposals under consideration affecting loan originator qualifications include the following requirements, regardless of type of employer or licensing entity:
- Requiring criminal background checks to screen for felony convictions
- Requiring training to ensure a knowledge regarding types of loans originated
As part of the Small Business Review Panel process, the CFPB provides a list of questions to selected small business representatives in order to collect feedback about the economic impact of compliance costs, among other issues. For the proposals under consideration as outlined in the May 9,2012 announcement, the list of questions and topics for commentary include, in part:
- Potential effects on company systems and operations, and time required to implement changes
- How the effects on systems and operations for smaller companies differ from larger entities
- Percentage of customers that pay discount points to reduce coupon rate on a mortgage loan and the amount of the reduction
- Impact of a requirement that there be a reasonable relationship between certain up front points and fees and the loan’s interest rate
- Impact of allowing point banks under the limited conditions being considered on mortgage loan originator’s bargaining position with creditors and the frequency of concessions made by the creditor versus the originator
- Changes required to systems and operations to enable entities to include the mortgage loan originator unique identifier and name on disclosure and closing documents
Additional information regarding the CFPB’s Small Business Review Panel process is available at:
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