CFPB requests comment on loan officer compensation rules

The Consumer Financial Protection Bureau is currently seeking comments on policies affecting loan originator compensation and licensing at smaller mortgage businesses, along with other regulations within the Truth in Lending Act.

The review of Regulation Z's Mortgage Loan Originator Rules is being undertaken as part of the CFPB's 10-year evaluation of the policies required by the Regulatory Flexibility Act. In addition to spelling out restrictions on compensation and tightened loan officer accreditation, Regulation Z, which implements TILA, also covers compliance procedures for depository institutions, arbitration rules and financing of single-premium credit insurance.

Although the call for comment aligns with the regular review timeline, the CFPB's request also cited three specific issues that had previously been raised as a source of concern among lending businesses, such as whether compensation could be determined differently for originations of loans provided by state financing agencies. 

In its 28-page filing, the CFPB also noted previous questions arising over whether lenders could adjust loan officer compensation if they had made an error or in order to match competition, and if remuneration could vary for mortgages originated in-house versus from third parties. 

"It is possible that the bureau may be open to making certain adjustments to the rule that industry has been clamoring for since the rule was implemented, particularly as the bureau chose to specifically reference three such recommendations," wrote attorneys at finance industry law firm Buckley in a blog post. 

Responses received will help determine whether the current set of rules should be applied going forward without changes or "if it should be amended or rescinded to minimize any significant economic impact of the rule on a large number of small entities," the CFPB said.

Between 2010 and 2013 following passage of the Dodd-Frank Act, the CFPB introduced new laws specifically pertaining to the mortgage lending process, which came to be known as Regulation Z's Mortgage Loan Originator Rules. Among the stipulations added were restrictions prohibiting compensation tied to mortgage rates or other terms of the loan, as opposed to the total transaction value. Originators were also not permitted to double-dip, receiving compensation from both lender and borrower. Such rules were put into place to prevent originators from leading clients to offerings that would benefit the loan officer but were not in the best interest of the borrower. Licensing and record-keeping requirements were also included.  

Mortgage entities are deemed "small" by the Small Business Administration if annual income averages less than $15 million. In 2017, the number of brokers falling within the SBA definition totaled 6,670, while nonbank mortgage lenders equaled 2,904, both well under half the figure 10 years earlier just prior to the Great Financial Crisis. The Regulatory Flexibility Act requires federal agencies to consider the effect on small entities for the rules it enacts.

Since 2015, the CFPB has highlighted instances of Regulation Z violations when a loan officer received compensation based on a mortgage's terms, such as the interest rate, or were paid differently based on the specific product provided. Depository banks have also been cited for failure to maintain written policies meant to monitor compliance.

The comment period for CFPB's request, which was released on Friday, remains open until 45 days following publication in the Federal Register.