Retail originators and mortgage brokers won’t have to count the compensation they pay their loan officers towards the 3% points and fee cap, according to the Consumer Financial Protection Bureau.
After reconsidering its position on LO compensation, the CFPB decided it is too difficult to calculate individual employee compensation accurately early in the origination process.
However, the consumer bureau stuck with its initial approach when it comes to compensation a creditor pays a mortgage broker in a wholesale mortgage transaction.
In a final rule issued Wednesday afternoon, the consumer bureau said compensation paid by the creditor to a mortgage brokerage firm should be included in the 3% cap under the qualified mortgage rule.
In addition, any origination fees paid by the consumer to the creditor must be accounted toward the 3% cap.
“This cap ensures that lenders offering qualified mortgages do not charge excessive points and fees,” the CFPB said. And this additive approach to wholesale loan transactions makes it “more difficult” to impose upfront charges and not exceed the 3% cap.
However, “the creditor may reduce the costs it needs to recover from origination charges or through the interest rate by having the consumer pay the mortgage brokers directly,” the CFPB says in the final rule that goes into effect Jan. 10, 2014.
The final rule excludes origination fees paid by the consumer to the brokerage firm from the 3% cap if those fees are included in the finance charge.
Wholesalers that “prefer to originate only qualified mortgages in many cases will have the flexibility to recover more of their origination costs through the interest rate to ensure that their transactions remain below the points and fees limits,” the CFPB says.
“We welcome the stipulation that compensation paid by brokers and lenders to loan originator employees do not count toward the points and fees threshold for what constitutes a qualified mortgage. Both of these provisions should facilitate a more efficient and affordable marketplace for borrowers,” said MBA president and chief executive David Stevens.
“While obviously there is more we would have liked to have seen done, particularly around the points and fees calculation, I think today’s announcement shows that the bureau is trying to appropriately balance consumer protection with access to affordable credit for qualified borrowers.”