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Opinion

QM Cap Discourages a Form of Broker Comp

On Wednesday, the Consumer Financial Protection Bureau released its long-awaited rules concerning whether and when compensation to a loan originator would be included in calculating the 3% cap on points and fees relative to determining whether a loan would be considered a qualified mortgage.

According to the Consumer Financial Protection Bureau rules, payments from mortgage brokers to their originators will not count toward the 3% cap, nor will payments from creditors to their employees count toward the 3% cap. In addition, payments from consumers to mortgage brokers will not count toward the cap on points and fees when such payments have already been included in the finance charge. Notably, payments from creditors to non-employees will be added to the calculation of points and fees for the purpose of calculating the 3% cap.

Obviously, this is welcome news to creditors, who can breathe a sigh of relief that their compensation payments to their mortgage originators will not be part of the cap on points and fees.

For mortgage brokers, however, the final rule presents further challenges and could spell the end of creditor based compensation to loan brokers. Essentially, with payments from creditors to mortgage brokers now being counted toward the caps for determining whether a loan meets the qualified mortgage definition, the practice of paying yield spread premiums to brokers for originating loans now faces a significant economic disadvantage which could spell an end to this form of compensation and origination.

Another apparent loser in this final Consumer Financial Protection Bureau rule might be creditors with affiliate relationships, who will apparently get little relief in regard to the inclusion of certain affiliate income in determining caps on points and fees.

For those simply happy to finally have concrete rules in place, think again. The Consumer Financial Protection Bureau noted in the comments that additional rules relating to fair lending, steering and other abusive and unfair and deceptive practices will be forthcoming.

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