CFPB’s Mortgage Loan Originator Compensation Proposed Rule

CFPB’s Mortgage Loan Originator Compensation Proposed Rule:

Written by Michael Coleman, Regulatory Compliance Counsel
The CFPB recently issued a proposed
rule concerning loan originator compensation. The Federal Reserve finalized
a rule (which was proposed prior to Dodd-Frank) on September 24, 2010, concerning loan originator
compensation.  The CFPB’s proposed rule would implement additional
provisions required by Dodd-Frank.
The CFPB issued a press
release which gives an overview of the proposed rule. The CFPB also issued
a 6 page summary
of the proposed rule which discusses some of the major elements contained in
the proposed rule. Here are several important requirements from the CFPB's
proposed rule we would like to draw your attention to:

• Restriction on upfront points or fees. Under the proposed rule,
  the creditor or mortgage broker would be prohibited from imposing upfront
  points or fees on a consumer in a closed-end mortgage transaction “unless the
  creditor makes available to the consumer a comparable, alternative loan that
  does not include discount points and origination points or fees, unless the
  consumer is unlikely to qualify for such a loan.” See proposed Section
  1026.36(d)(2)(ii)(A).

• Restrictions on loan originator
  compensation. The proposed rule retains the general ban on paying or receiving
  commissions or other loan originator compensation based on the terms of the
  transaction (other than loan amount), and the general ban on loan originators
  being compensated by both consumers and other parties, with some additional
  revisions. The proposed rule also clarifies and revises restrictions on pooled
  compensation, profit-sharing, and bonus plans for loan originators, depending
  on the potential incentives to steer consumers to different transaction terms.

• Qualification requirements for loan
  originators. For loan originators who are not already required to be licensed
  under the SAFE Act (for example loan originators employed by credit unions, who
  are only registered pursuant to 12
  CFR § 1007.103) the proposed rule requires the employer ensure that the
  loan originator meets character, fitness, and criminal background check
  standards that are equivalent to SAFE Act requirements and receives training
  commensurate with the loan originator’s duties. (Note, we will talk about this
  in more detail in a future blog post.)

• Use of the loan originator’s unique
  identifier. The CFPB proposes that the loan originator include their
  Nationwide Mortgage Licensing System and Registry (NMLSR) ID on certain loan
  documents, including: the credit application; the GFE and settlement statement
  required by RESPA; disclosures required by section 128 of the Truth in Lending
  Act (15 U.S.C. 1638); the note or loan contract; and the security instrument.

• Anti-steering rules. The
  proposed rule retains the anti-steering rules from the Federal Reserve’s final
  rule and adds a requirement that where two or more loans have the same dollar
  amount of discount points and origination points or fees, the creditor must
  present the loan with the lowest interest rate and lowest total dollar amount
  of discount points and origination points and fees.

• Arbitration agreements. The
  proposed rule would ban general agreements requiring consumers to submit any
  disputes that may arise to mandatory arbitration rather than filing suit in
  court.

• Credit insurance. The
  proposed rule would generally ban the financing of premiums for credit
  insurance.

These
are the broad strokes of the proposed rule, we will focus on one or two of the
specific requirements in more detail in a future blog post. Note, the comment
period for this proposed rule ends on October 16, 2012.