Industry groups are urging the Consumer Financial Protection Bureau to permit lenders to pay commissions to their loan officers and drop a proposal that mandates flat origination fees in certain mortgage transactions.
In a joint letter, four trade associations note that paying commissions based solely on loan volume does not run afoul of the Dodd-Frank Act.
“A creditor or brokerage paying its employees a commission that does not vary by loan terms other than principal does not create an incentive to steer consumers into more costly loans,” the July 23 letter says. It also adheres to congressional intent to ban yield-spread premiums.
The joint letter by the American Bankers Association, American Financial Services Association, Consumer Mortgage Coalition and Independent Community Bankers of America also notes that the Dodd-Frank Act does not prohibit the payment of salaries or hourly wages to LOs.
Several months ago, the CFPB issued a detailed outline of how it plans to revamp the Federal Reserve Board’s LO compensation rule. The outline raised several controversial issues, including when a lender must charge a flat origination fee.
Under the CFPB outline, lenders would be required to charge a flat origination fee when a consumer pays upfront points and fees and a creditor compensates a loan originator.
Instead of charging a fee based on 1% of the loan amount, the lender would have to set a specific dollar amount for the fee.
A flat fee would include many fixed costs and make it difficult to pay commissions.
The joint comment letter points out several ways consumers would be “disadvantaged” by flat fees, including the fact that they are not tax deductible.
In addition, a flat fee would conflict with certain Fannie Mae and Veterans Affairs rules, which could harm consumers.
If the bureau does require flat fees, the associations recommend that the bureau provide exceptions so that rate-lock fees can vary by loan size and permit creditors to charge different flat fees for different loan products and programs.
“Overall, the many disadvantages of flat origination fees far outweigh any possible advantage,” the trade groups say.
One industry expert told National Mortgage News that the LO compensation proposal the bureau is expected to issue for public comment will prohibit compensation based on the terms of the loan, which should deter abuses. “So what’s the point of a having a flat origination fee?” he asked.
