Opinion

More on Loan Officer Compensation from CFPB

 SOME MORE ON LO COMP AND OTHER RULES FROM CFPB

(As an aside the CFPB has issued multiple regulations and amendments to the loan originator compensation rule from January 2013 through October 2013. So CFPB has been amending the compensation rule from inception in January for 10 months! (smallenttiycompgdenov2013)

FACTS

Compensation based on whether a consumer is of low-to-moderate income likely would not be a proxy for loan terms even if the loans to such consumers have terms that consistently differ from the loans of other consumers (for example, they have a higher interest rate). This is because loan originators typically cannot change whether a consumer is of low-to-moderate income. (cfpbsmallentitycomplianceguide2013lorule)

Payments by a consumer to a loan originator from loan proceeds are considered compensation received directly from the consumer. (36(d)(2)(i)-2comment) Additionally, compensation to the loan originator paid on the consumer’s behalf buy a person other than  the creditor or its affiliates, such as a non-creditor seller, home builder, real estate broker or agent is considered compensation from the consumer if made pursuant to an agreement between the consumer and the person other than the creditor or its affiliates. (36(d)(2)(i)-2(iii) comments,15usc1639b).

CAVEAT:  Once the creditor has agreed to the rate with the consumer it may lower the rate, but it cannot lower the loan originator compensation. The creditor may change credit terms or pricing to match a competitor, to avoid high-cost mortgage provisions or for other reasons, but it may unto change the loan originator compensation on the loan. (36(d)(1)-5, -7)

The one exception to lowering loan originator compensation is when there are unforeseen increases in settlement costs, within certain limitations.  (36(d)(1)-7)

Creditors shall not include mandatory arbitration clauses and provisions where consumers waive federal statutory causes of action.

If you work for a servicer and assist the consumer by refinancing or assisting in adding a different consumer on an existing debt you are a loan originator.  (36(a)(1)(i)(E)).

Sellers financing their own properties can be considered creditors if they extend credit secured by a dwelling six or more times in the preceding calendar year exclusive of high cost loans. The seller is also a creditor under Reg Z if (s)he does more than one high-cost loan in any 12-month period. (1026.32)

Reverse mortgages are subject to loan originator compensation limits. (36(d)(1)-10).

Home builders, real estate brokers, or agents or others may agree to pay some or all of the consumer’s closing costs subject to limitations of state law. Under Reg Z however, if it is agreed that the above will pay it is considered compensation from the consumer and not the creditor/lender.   There are conditions: (1) the entity paying the fee is not the creditor or any of its affiliates; (2) there is an agreement between the consumer and thee person for the person to provide funds toward the consumer’s transaction costs. e.g., home seller agrees to contribute to closing costs $1000 but does not specify what it is to be used for. Any of it used to pay the mortgage loan originator broker is considered paid by the consumer. (1026.36(d)(2)(i)(B))

Although felony convictions within the last seven years will make a person unqualified as a loan originator, if the conviction is subsequently expunged or pardoned the person may qualify as a loan originator subject to state  licensing laws and regulations for licensing such as the California Bureau of Real Estate. (cfpbloruleguidep65iii)

Loan documents that require names of the originating organization and NMLS&R as well as the loan originator information must be included on the credit application, promissory note or loan contract, security instrument (deed of trust, mortgage, etc.).  (1026.36(g)(1)-2commnetary)

MORAL

These are not all the rules. These are not all the interpretations of the rules. It is to let you know of what is happening. If you would like us to audit you for compliance with CFPB compliance it will of necessity include state compliance which is imbedded in the CFPB rules. These rules are still new and definitely complex even after having read them numerous times. So be careful, be in compliance because with 1,500 employees under CFPB director Richard Cordray, there is no way to guarantee when you will be audited because of the lack of a lengthy track record. So far the “major violators” have been taken on by CFPB.  But they are actively responding to individual consumer complaints as well.

BROKER AND LENDER SUED FOR DECEIT AND UNFAIR BUSINESS PRACTICE FOR GIVING LOAN TO UNQUALIFIED BORROWER

FACTS

Michael Fuller sued the broker and the lender (First Franklin Financial Corp.) for deceit and scheme of predatory lending as an “unfair business practice” after the normal statute of limitations had passed. The court dismissed the case because of not suing them timely. Fuller appealed.

The 3rd District Courts of Appeal said reversed. The amended complaint sufficiently alleged delayed discovery for filing after the normal time to sue had run out alleging that the reputation of First Franklin as the largest provider of loans to unqualified borrowersand marketer of these subprime loans to investors. Additionally, that First Franklin ignored standard underwriting protocols creating the high risk that plaintiffs and many others would face foreclosure under the loans and inflated home appraisals in order to maximize its market share of loans deflecting any risk to itself by selling off these so-called subprime mortgages to investors.  (Fuller v. First Franklin Financial Corp. (3rd dist. 5-1-13) 163 cr 3rd 44)

MORAL

All this means is that Fuller has the right to go forward with the lawsuit. Proof is another thing. What is notable here however is the broker was sued as well.

COURT OVERTURNS CA BRE LICENSE REVOCATION

FACTS

On Nov. 4, 2007, Peggie Ryan-Lanigan, a licensed real estate agent, rear-ended a vehicle at a stop sign. Instead of waiting for the California Highway Patrol, she left the scene and did not give the victim her name or address. She was subsequently charged with and pleaded no contest to and convicted of a misdemeanor hit and run with property damage.

In 2009, the California Bureau of Real Estate sought to discipline her due to her conviction. Ryan sent the BRE a letter claiming she had been “hurrying home due to dizziness and diarrhea” at the time of the accident. In the meantime the trail court decided to set aside her conviction and let her plead to a basic speed law infraction instead. Notwithstanding this, in July 2012 an administrative law judge round Ryan’s real estate license should be revoked, which the BRE adopted.  However, the trial court subsequently directed the BRE to set aside its decision to revoke the license and the BRE appealed.

The 3rd District Courts of Appeal said affirmed. California Business and Professions Code Section 10177 authorizes the BRE to revoke a real estate agent’s license if she has been convicted of a crime related to her duties. The BRE retains this authority even if a criminal court has dismissed the conviction under Penal Code Section 1203.4 and has thereby expunged the conviction. The BRE loses its authority in the event of any other kind of dismissal. The BRE argued it could revoke the license even though the trial court set aside the hit and run conviction. However, the trial court did not dismiss the conviction based upon Section 1203.4 and the conviction was not expunged. The BRE therefore, was no longer allowed to discipline her and the trial court properly decided to set aside the decision to revoke the license.  (Ryan-Lanigan v. BRE, 3rd Dist.  No. C066848, 12-13-13)

MORAL

It is an interesting opinion to read since there is reference to the BRE taking an unreasonable position as to the interpretation of a statute.  One position is the BRE contending that section 10177 authorizes disciplinary action against licensees who enter pleas or are convicted “irrespective of” subsequent withdrawal of plea or dismissal.  The court stated in response that 10177 is expressly limited to subsequent plea withdrawals and dismissals made pursuant to Penal Code Section 1203.4. The court went on to state that the BRE was trying to interpret 10177 in an “unreasonable” manner. 

THE INFORMATION CONTAINED HEREIN IS NOT LEGAL ADVICE. AN ATTORNEY SHOULD BE CONSULTED IF YOU DESIRE LEGAL ADVICE

For reprint and licensing requests for this article, click here.
Originations Law and regulation
MORE FROM NATIONAL MORTGAGE NEWS