CFPB’s Compensation Proposal Makes LO Price Concessions Difficult

The Consumer Financial Protection Bureau is not giving residential loan officers much flexibility when it comes to changing their origination fee.

Once the fee is set, it cannot be lowered based on subsequent negotiations or to meet a competitor’s offer—or for other reasons, according the proposed rule on LO compensation the CFPB recently issued for public comment.

While a mortgage company can agree to change the loan’s terms or pricing, “the loan originator’s compensation on that transaction may not be changed,” the CFPB says.

In other words, “only the company can cut the price” to satisfy the borrower, said Brian Chappelle, a consultant with Potomac Partners. “And the company has to pay the LO’s usual fee,” he added.

A loan officer can reduce their compensation in “response to unforeseen events outside the loan originator‘s control,” the proposal says. A reduction in compensation would be justified to cover “unanticipated” third-party closing costs, for example.

However, LOs are expected to have a good handle on closing costs. But the CFPB cautions that a series of pricing concessions might raise suspicions the LO is “knowingly overestimating” closing costs.

The comment period on the proposed rule ends Oct. 16.