WE’RE HEARING that industry folks are hoping the Consumer Financial Protection Bureau will just use its regulatory authority to exclude loan originator compensation from the 3% points and fees cap.
The arguments for ignoring this LO comp provision in the Dodd-Frank Act run the gamut. First, the statute is poorly written and constructed. And second, the alternatives proposed by the consumer bureau lead to double counting or would be operationally unworkable.
At the same time, the points and fees cap is a critical component of the qualified mortgage rule. Loans that exceed the 3% cap will be classified as non-QM loans and won’t enjoy a safe harbor from litigation. It’s not going to be easy selling non-QM loans in the secondary market.
However, the American Bankers Association is supporting one option proposed by CFPB that would count any upfront origination fee paid by the consumer as LO compensation.
In a retail bank transaction, part of the origination fee generally goes to the LO.
If the origination fee is $100 and the bank pays the LO $75, the bank still counts $100 toward the 3% cap. If the bank pays the LO $150, then the bank has to add another $50 to points and fees.
“It is simple and avoids double counting,” according to ABA regulatory counsel Rod Alba.
He stressed that ABA doesn’t support the premise that the LO comp should be counted toward the cap. They just want a workable solution.
The Mortgage Bankers Association takes the view that the statute was poorly drafted and compensation to LOs should be totally excluded from the points and fees test.
The MBA also wants to ensure that mortgage brokers remain competitive under the QM rule. “MBA supports excluding compensation from the lender to broker from the points and fees calculation in order to facilitate a vigorous competitive market for consumers.”
Some suspect the LO comp provision in the DFA is designed mainly to hurt mortgage brokers. And consumer groups like the Center for Responsible Lending don’t believe borrowers get their money’s worth in brokered transactions.
In a joint comment letter, CRL and four other consumer groups are urging the CFPB to include all compensation the wholesale lender pays the mortgage brokerage, plus any upfront fees the borrower pays the wholesaler, in the points and fees calculation.
That is the last thing the MBA and mortgage brokers want to see. In a comment letter, West Virginia mortgage broker Marc Savitt urged CFPB to preserve a level playing field. Only compensation received by the mortgage brokerage should be included in the points and fees calculation, he said.
But the consumer groups contend the MBA’s and broker’s position would make a lot of high-cost loans look QM compliment—when they are not. And these brokered loans would be protected from litigation under the QM safe harbor.
MOST EMAILED: Wingspan Portfolio Advisors’ purchase of a Florida servicing platform from JPM Chase is the most emailed content of the week. Although apparently no servicing changed hands, just the platform, it still indicates the deconsolidation of servicing (a good thing, in our opinion) is still under way. The story, written by Evan Nemeroff, can be found here. And there’s still time for you to e-mail it somebody else!
FRAUD’s UP. NO, DOWN: Frank Garay and Brian Stevens from National Real Estate Post leave the comfort of their frat house clubroom today (love their poster of Farrah Fawcett, though she must be a historical figure to them) to zoom down the highway (well, there may be some photoshopping here) to make a point about mortgage fraud. Just what it is, we’re not clear. But the main thrust of their video’s thrust this week is to question assertions that mortgage fraud is up. And if it is not up, it could be down. Gravity is gravity!
SEQUESTRATION SIESTA: Getting tired of all the nonsense over sequestration? So are our Grapeviners, showing some uncommonly good sense. Their idea of what to do to ignore the sequester (isn’t that what they used to call a college half year?) is to while away the time of day in the company of a stiff drink. And they get quite specific about which ones. After the boozing, a sequestration siesta may well be in order!
SHOUT OUT: We’ve been giving kudos to those firms ending the RE and mortgage bust by hiring more than ten net new people at a time. Couldn’t find one this week, but these guys hired four, so they get an honorable mention! Broadstone Real Estate, Rochester, N.Y., has added Molly Wiegel as director of human resources. Rob Merrill also has joined Broadstone as director of new market development for Broadtree Homes. Abby Montemaro has joined Broadstone as shareholder services coordinator. And starting today (March 1), Jodi Falk has joined Broadstone as chief operating officer.
Mark Fogarty is editorial director of the SourceMedia Mortgage Group and has been commenting on the mortgage market since 1984. Brian Collins is the group’s senior editor and D.C. bureau chief. He has worked the mortgage beat since 1988.