As most of us are aware the Consumer Financial Protection Bureau (CFPB) is amending Reg Z to implement amendments to the Truth in Lending Act (TILA) mandated by the Dodd-Frank Act, which leaves loan originations in very familiar territory. Asking them same questions they have been asking for several years now “How does this affect me”? The answer is just as confusing as ever. Let’s try to make some of this a little clearer.
First of all is the restriction on dual-compensation, the loan originator cannot receive compensation from the borrower (upfront points) and be paid by any other person involved in the transaction. The final rule does provider and exception to allow the lender to pay their originators a commission but (and it’s a big but) the commission cannot be based on the terms of the loan. What is allowed is the payment of an annual or periodic bonus, paid to the origination based on number or dollar amount of loans closed.
The new rule does allow for a lender to use interest rate to cover upfront costs (so long as lender paid compensation to the originator is not based on the loan terms (other than loan amount). Not only does the new rule prohibit loan officer compensation to increase based on the terms of the loan it also prohibits their compensation to decrease. In other words what was once referred to as “pricing concession” common when an originator would give up some of their commission to “win the deal” will no longer be allowed.
The lender is allowed to change compensation levels on a periodic basis, they may also pay different compensation formulas to different loan originators but keep in mind that you are not allowed to vary compensation based on the type of transaction. Meaning that you must pay the same rate of compensation on purchases or refinances, and the same on FHA versus Conventional. The key here is the requirement that the loan officer compensation not vary based on “loan type”.
As confusing as some of these new rules are we can all be certain of one thing – this is not the end of the changes. It is crucial that your keep apprised of these new rules and not let them sneak up on you. With all these new regulations it is more important than ever to do all you can to remain compliant, from developing an internal task force to outsourcing some of your more critical concerns to a third party. When you work with an appraisal management company like Nationwide Appraisal Network it allows you to focus on all the other areas of pending regulatory changes and know that you will remain complaint when it comes to appraisals.