In materials provided to the Small Business Review Panel, the CFPB outlined its plans to implement the loan originator compensation provisions of the Dodd-Frank Act that place restrictions on the ability of creditors and consumers to compensate mortgage loan originators. These restrictions are similar to those contained in the rule issued by the FRB in April 2011, which prohibits a creditor from compensating a loan originator based on the terms and conditions of the transaction.
The Dodd-Frank Act generally provides that loan originators may only be compensated by consumers, but may also be compensated by the creditor when the following two conditions are met: (1) the originator must not receive any compensation directly from the consumer; and (2) the consumer must not make an upfront payment of discount points, origination points, or fees, other than bona fide third-party fees not retained by the creditor, the loan originator, or affiliates. The Dodd-Frank Act gives the CFPB authority to create exemptions to the second condition if it finds that the exemptions are in the public interest. In its proposal, the CFPB states that it is considering using its exemption authority to permit consumer payment of upfront points and fees under certain circumstances, including, for example, if the discount points are bona fide, meaning they result in a minimum reduction of the interest rate for each point paid, and the creditor offers an option of a no discount point loan.
The CFPB also indicated its intention to carry out its authority under Dodd-Frank to ensure that loan originators are “qualified.” Currently, the Secure and Fair Enforcement for Mortgage Licensing Act imposes registration or licensing requirements on loan originators, but these requirements differ based on whether the loan originator is an employee of a bank or non-bank. Under the CFPB’s proposal, all loan originators of banks and non-banks would be subject to certain qualifications and requirements, including the same standards for character, fitness, and financial responsibility; criminal background checks; and training. Click here for the related press release, here for the outline provided to the Small Business Review Panel, and here for discussion issues given to Panel members.