mortgage originator compensation

The CFPB has issued Bulletin 2012-02  to address concerns as to whether the mortgage loan originator compensation rule in Regulation Z (Truth in Lending Act) prohibits originators from participating in a qualified profit-sharing 401(k) or employee stock ownership plan (Qualified Plan). In the Bulletin, the CFPB advises that loan originators can participate in a Qualified Plan. The CFPB is currently working on rules to implement the loan originator compensation provisions of the Dodd-Frank Act but decided it was important to issue the clarification now rather than wait for the final Dodd-Frank rules to be adopted. Our legal alert contains a detailed discussion of the Bulletin.

Banks that offer mortgage products are being buried in new regulations that are straining their compliance capabilities, increasing their costs and, for community banks, threatening the viability of their entire business model. That’s the message the American Bankers Association tried to send in its recent letter to Raj Date, President Obama’s replacement for Elizabeth Warren as Special Advisor to the Treasury Secretary on the CFPB.

The letter makes three recommendations for improving the situation.

First, the ABA would like the CFPB to coordinate its activities with what other agencies are doing in the mortgage arena and issue a projected timetable for proposing, finalizing and implementing all of the mortgage-related rulemaking mandated by Dodd-Frank. Second, because the ABA thinks whatever qualified mortgage (QM) standard the CFPB adopts will set the scope of most future mortgage lending, it wants the CFPB to get moving on reviewing comments on the Fed’s ability-to-repay QM safe harbor proposal. (Comments were due by July 22.) Third, the ABA wants the CFPB to issue guidance to resolve the wide-spread confusion over what kinds of compensation arrangements are prohibited by the new limits on mortgage originator compensation because they are considered to be a “proxy” for a loan term or condition.

We think the ABA’s recommendations are well-founded and hope the CFPB is paying attention.