The CFPB surprised many when its proposals announced earlier this month contained a provision to eliminate certain critical differences between brokers and creditors concerning the compensation of loan officers. This may not, however, be as significant for brokers as it may first appear.
Currently, brokers cannot receive both origination points and yield spread. Creditors, on the other hand, can receive income both from an investor on the sale of the loan and from the consumer.
Under the CFPB's proposed rules both creditors and brokers could receive compensation, and pay their loan officers on specific deals provided:
1. There was no compensation being paid on the terms of the loan,
2. The origination fee was a set dollar amount for all transactions,
3. Any discount points were bona fide,
4. Borrowers were offered the option of a loan with and without up-front fees.
It would appear at first that the CFPB's proposal to eliminate the compensation differences between creditors and brokers would significantly benefit brokers.
However, until the CFPB decides how to handle the difference between the Federal Reserve's anti-steering presumption (requiring only brokers to show the three lowest cost alternatives) and Dodd-Frank (which contains no such provision) the marked advantage still lies with creditors who need not provide this comparison.
Indeed, the three-loan beauty pageant (as I refer to it) essentially requires brokers to maintain a static singular yield spread. Hence, providing brokers the chance to charge a flat up-front fee will not, in my estimation, significantly alter the business landscape sufficient to offset the advantages that exist for creditors.
