CFPB Compensation Rules Shift Mortgage Broker Direction

by Kerri Ann Panchuk

The Consumer Financial Protection Bureau (CFPB) topped off a week of mortgage rule rollouts by launching the agency’s guidelines for loan officer and broker compensation Friday.

Among other provisions, the CFPB’s final rule keeps originators from steering borrowers into risky and high-cost loans, ends dual compensation from both the consumer and creditor and bans the attachment of mandatory arbitration agreements to mortgage and home equity loans.

The CFPB’s final rule governing risky and high-cost loans also ends the practice of originators’ increasing loan amounts to cover credit insurance premiums,
the CFPB said.

“Before the financial crisis, many mortgage borrowers were steered towards risky and high-cost loans because it meant more money for the loan originator,” said CFPB Director Richard Cordray. “These rules will hold loan originators more accountable by banning the incentives that led so many of them to direct consumers toward disaster.”

As part of the rule’s anti-steering provision, the CFPB prohibits originators from obtaining compensation plans that fluctuate with the terms of the loan.

The rule also stipulates that brokers and loan officers cannot get paid more for putting consumers into loans with higher interest rates, a prepayment penalty or higher fees. Originators also are banned from obtaining higher compensation if the consumer buys title insurance from a lender affiliate.

In addition, loan originators cannot receive payment from both the consumer and another party like the creditor.

The CFPB rule requires originators to follow the federal Secure and Fair Enforcement for Mortgage Licensing Act, which outlines character and fitness requirements, forces criminal background checks and ensures training for loan originators.

The CFPB previously suggested a rule that would force originators to offer loan products with no upfront discount points or fees to offset existing products that come with both of those features. Since then, the CFPB has backed away
from this provision.

“Based on the comments received, the CFPB has decided not to finalize this part of the proposal,” the agency said.

Most of the rules take effect in January 2014, with the exception of the mandatory arbitration and credit insurance rules, which go into effect in June.



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