Are Affiliate Relationships and Brokers In Danger?
The new qualified mortgage rules that were released contain a cap of 3% on points and fees. The ability-to-repay rules state that “a creditor is not required to count in points and fees any bona fide third-party charge not retained by the creditor, loan originator, or an affiliate of either.” In translation, the charges retained by any affiliate will be applied to determining the 3% cap—so will any amounts paid to brokers from lenders.
This means that lenders who have affiliate relationships will need to ensure that any upfront fees charged to consumers on the “origination side” of a transaction leave sufficient room for the amounts retained by an affiliate so as to avoid hitting the 3% cap. Similarly, depending on the outcome of pending proposals by the Consumer Financial Protection Bureau as to the nature and extent of what payments to originators should be considered in points and fees, payments to the originator could be part of the equation. Thus, the more paid to originator, the less available for an affiliate to retain and vice versa.
Depending upon the CFPB’s ultimate decision in regard to the points and fees and originator compensation, brokers and affiliate relationships could be in jeopardy. Any regulatory structure that essentially pits the amount an affiliate retains “against” the amount an originator is paid, effectively limits the creditor, and can put a company at a competitive disadvantage against another lender that does not have such limitations.
Stay tuned, the pending proposals may be more impactful than the rules that have already been finalized…