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CFPB to Conduct Review of Loan Originator Compensation Rule
On June 4, the Consumer Financial Protection Bureau (CFPB) notified the White House Office of Management and Budget (OMB) that it plans to review the loan originator compensation requirements found under the Truth in Lending Act and Regulation Z.
The requirements generally prohibit loan originator compensation based on a transaction term or a proxy for a transaction term. In other words, financial institutions may not pay their mortgage loan originators a higher level of compensation in connection with loans with a higher interest rate.
The CFPB’s loan originator compensation rule, in place since 2013, has received mixed reviews within the industry. Some view it as a necessary consumer protection, while others view the requirements as overly restrictive. Although there is little argument that some tweaks may be looked upon favorably by mortgage lenders, what’s confusing is that in its notification to OMB, the CFPB went as far as to tease rescission of the rule in its entirety.
So once again we find ourselves guessing as to what the CFPB’s actual intent is. Section 1403 of the Dodd-Frank Wall Street Reform and Consumer Protection Act reads as follows: “For any residential mortgage loan, no mortgage loan originator shall receive compensation that varies based on the terms of the loan.” Thus, we have statutory language that regulates loan originator compensation, and a complete repeal of the requirements is not possible absent an act of Congress.
The moral of the story here is stay tuned. We may see some changes to Regulation Z’s loan originator compensation requirements because of this review; however, don’t anticipate a return to the previous days of the Wild West.
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