Henry Meier, The Law Firm of Henry C. Meier, Esq.
Buckle up, loan officers, because many of the restrictions on your pay spawned by the housing crisis could disappear.
Toward the end of the first week of June, the CFPB submitted to the Office of Management and Budget (OMB) proposed regulations that would, among other things, address existing Loan Originator Compensation requirements under Regulation Z. Notice of the submittal to the OMB was not coupled with a public release of the proposed amendments, but it means proposed changes could be coming soon. Still, the fact that the CFPB is considering making changes to the loan originator rule could mean that we are on the verge of one of the most significant regulatory rollbacks under the Trump Administration’s CFPB.
News of potential changes to these regulations is about as exciting to anyone who wrestled with implementing these mandates as it is to tell a 5-year-old that Christmas Eve is coming early this year. There is much that could be changed that would make the compliance professional a more welcome presence from mortgage lenders across the country.
For those who managed to block out the trauma, a quick refresher: Regulation Z’s current Loan Originator Compensation framework stems from Dodd-Frank’s post-2008 directive to curb the Wild West practices in mortgage lending. Under rules finalized in 2013, loan originators cannot be compensated based on a loan’s terms or conditions (read: no steering toward higher interest loans), and dual compensation—receiving payment from both the consumer and another party in a single transaction—is a hard no. The rules also require licensing disclosures, record retention, and specific anti-steering safe harbor provisions. In short, it’s a minefield with paperwork.
And it’s not just speculation. OMB’s dashboard shows the proposed rule is now under review, putting us officially on “any day now” watch. While the text of the proposed amendments hasn’t been made public, mortgage industry advocates are already lobbying for changes that would allow more flexibility in structuring compensation and revisiting long-standing concerns like paying originators differently based on loan type or complexity.
Those of you who want to take an unpleasant trip down memory lane should review this Federal Register posting from 2013. The loan originator compensation rules touched on a broad range of issues, including:
- The mortgage loan conditions that could be used as the basis for compensating an originator
- Further clarification of dual compensation arrangements
- Severe restrictions on the circumstances under which loan originators may be compensated by more than one person for the same transaction
- Base-level licensing and record-keeping requirements
Remember that many of these regulations were required to be promulgated under the Dodd-Frank Act. Once we get the proposed changes, one of the key legal debates will be whether the proposed amendments exceed the CFPB’s statutory authority. Stay tuned!