The CFPB Introduces New Mortgage Loan Originator Compensation Requirements under the Truth in Lending Act
President Obama put in place the Consumer Finance Protection Bureau in an effort to protect American consumers in respect to loans, mortgages and finance related activity. The CFPB has made recent adjustments to loan originator’s compensation. Like it or not, there are new laws rolling out that will have a significant impact on the entire mortgage lending industry.
The CFPB amended Regulation Z to implement amendments to the Truth in Lending Act made by the Dodd-Frank Act. The final rule implements requirements and restrictions imposed by the Dodd-Frank Act concerning loan officer compensation; qualifications of, and registration or licensing of loan originators; compliance procedures for depository institutions; mandatory arbitration; and the financing of single-premium credit insurance. The final rule revises or provides additional commentary on Regulation Z’s restrictions on loan originator compensation, including application of these restrictions to prohibitions on dual compensation and compensation based on a term of a transaction or a proxy for a term of a transaction, and to record-keeping requirements. The final rule also establishes tests for when loan officers can be compensated through certain profits-based compensation arrangements. At this time, the CFPB is not prohibiting payments to and receipt of payments by loan officers when a consumer pays upfront points or fees in the mortgage transaction. Instead the Bureau will first study how points and fees function in the market and the impact of this and other mortgage-related rule-makings on consumers’ understanding of and choices with respect to points and fees. This CFPB final rule is designed to protect consumers by reducing incentives for loan originators to steer consumers into loans with particular terms and by ensuring that loan originators are adequately qualified.
1. The CFPB Rule
a. Effective dates
b. Breakdown of the document’s contents
2. Detailed summary of the rule
3. Related proposals
The Rule and Effective dates
The amendments to § 1026.36(h) and (i) are effective on June 1, 2013. All other provisions of the rule are effective on January 10, 2014. If you have question, contact CFPB about interpretation or application by email at CFPB_reginquiries@cfpb.gov or call (202) 435-7700. Read more about New Rules on Loan Officer Compensation Under TIL and Regulation Z.