Mortgage Bankers Association has sent a letter and supporting materials to the
Consumer Financial Protection Bureau providing its opinion on the CPFB's
proposed rule on mortgage loan originator (LO) compensation and qualifications. CFPB's proposal would augment the existing
rules issued by the Federal Reserve Board (Board Rules) with similar provisions
of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
principal difference between the Board Rules and Dodd-Frank is that the later
would establish an exemption to the provision that bans commission-based
compensation to an originator and the payment of up-front points and fees. The proposal would require that lenders offer
a "zero-zero" option or a no points and no fees loan.
The Proposal would also make several
revisions and clarifications to the Federal Reserve Rules to address concerns that
have arisen following implementation of those rules and would implement
Dodd-Frank requirements that loan originators be
"qualified," establishing new requirements for background checks and
training applicable to loan officers employed by depository institutions.
its letter, sent over the signature of its President and CEO David H. Stevens,
MBA points out that 18 months ago the Federal Reserve Rules mandated a complete
overhaul of compensation practices for LOs.
During the same period new licensing and registration procedures for LOs
were established under the Secure and Fair Enforcement in Mortgage Licensing
(SAFE) Act. MBA said the implementation
of the Fed's rules was problematic; the guidance provided seemed to extend far
beyond the rules, and too short a period was provided for compliance. Consequently MBA looks at the new rulemaking
as a significant opportunity to revisit the Federal Reserve Rules and other
requirements to LOs and their compensation.
said that issues around LO compensation and qualifications are important to
consumers, the mortgage industry, and the economy at large and the Federal
Reserve rules were directed in large measure at prohibiting compensation that
could result in LOs steering borrowers to loans that were more beneficial to
the originator than the consumer. Because
of these changes and actions by lenders themselves, compensation structures
that in some cases resulted in a misalignment of originators and borrowers'
interests were eliminated. Further,
thousands of loan officers who did not have the background, character or skill
to serve their customers are no longer working for mortgage lenders.
follows is a brief summary of key points raised by MBA, principally regarding
rules surrounding LO compensation. MBA
provided a significant discussion of each of these points and its letter and
supporting information can be read in its entirety here: MBA's Full Letter
Points and Fees and Commission Based Payments:
exemption from the Dodd-Frank provision that might prohibit the payment of transaction-specific
commission for originated by a creditor or a mortgage brokerage if the creditor
or brokerage also receives points and fees from the borrower is necessary and
should be put in place before the January implementation of the Dodd-Frank
rules. However, MBA opposes the exemption
currently proposed which would require
that creditors and brokerages make available a zero-zero loan with no
upfront discount points, origination points, or fees if commission-based
compensation is paid to an originator.
report difficulties in offering this option and the exception goes considerably
beyond the stated purpose of the requirement by facilitating comparison
shopping and ensuring consumers receive value for the payment of points and
fees. These are issues more
appropriately dealt with elsewhere such as in RESPA-TILA rulemaking.
If the Zero-Zero
exemption is established, MBA urges that all fees for "third-party
services," be excluded from the calculation of a zero-zero loan and, for
that matter, the points and fees calculations for QM and HOEPA loans, so that
borrowers do not face an apples-to-oranges comparison when comparing loans from
lenders with and without affiliates.
MBA supports rules requiring bona fide
discount points that result in real rate reductions, regulators must recognize
that such a reduction cannot be quantified in terms of a specific and
pre-determined fraction of a reduction in all cases. If the requirement is unworkable, discount
points may become unavailable despite their value to consumers.
final rule regarding Proxies should permit differences in compensation based on
cost differences among products; incentivize offering of good sustainable
products such as state agency or Community Reinvestment Act loans; and contain an
inclusive list of proxies and exceptions.
is concerned that options for bonuses, profit-sharing, and pooled compensation provided under the provision are not
feasible for smaller monoline mortgage lenders and consequently will place
these firms at a disadvantage in competing for loan originators.
exception to the rule permitting a LO's compensation be reduced to pay
origination charges where there is an unanticipated increase in the closing
costs attributable to non-affiliated third parties is too limited and should be
CFPB proposes to expand and clarify the definition of "loan
originator." However, the Proposal
creates confusion as to whether loan processors are loan originators, and would
appear to treat as loan originators employees who simply refer business.
CFPB exercise its exemption authority to permit transaction specific
commissions to originators and payment of upfront points and fees to creditors
and brokerages before the dual compensation provision of Dodd-Frank takes
effect and that after the rule is issued questions be answered in writing and
publicized widely. Compliance should not
be required until a reasonable time after the provision of necessary guidance
as a premature deadline could have negative consequences, and with all the other
rules coming on line, twelve months may prove insufficient to comply once the
final rule is issued and guidance provided.
Summary of Key
Points in Loan Originator Qualifications
supports the proposal that originator entities must: (1) ensure that their
individual loan originators meet character and fitness and criminal background
standards equivalent to the standards the SAFE Act applies to employees of
non-bank loan originators; and (2) provide appropriate training to their
individual loan originators commensurate with the mortgage origination
activities of the individual. But MBA
said it also believes that these standards should be established and applied to
bank and non-bank originators in a manner that avoids duplication, undue burden
and unnecessary costs. These standards
will give rise to liability under TILA and therefore should be established as
clear, bright-line requirements.
is examining other opportunities to provide common standards to ensure a common
consumer experience and expectations about a loan originator's qualifications. MBA is considering proposals whereby all loan
originators would be qualified by taking a uniform test administered by
regulators responsible for chartering them as a further step toward uniform