The LO Compensation rule that is scheduled to take effect on April 1st, marked the first session of the day at NRMLA West and as the deadline looms, many questions still linger. The lenders represented on the panel, including Genworth, MetLife and Security One Lending, acknowledged that they are still formulating their policies to comply with the new requirements.
The theme of the session was that there are still more questions than answers about how the rule is to be implemented. NRMLA President, Peter Bell, stated that NRMLA had just sent a letter to Federal Reserve Chairman, Ben Bernanke, joining of the chorus of industry requests to delay the rule in order to provide the industry additional time to properly prepare for complying with the rule. The panelists, however, agreed that they believe the rule will likely move ahead as scheduled, and even if there is a temporary delay, they will likely proceed with implementation as planned. They noted at this point, they have already started to change their policies and procedures to the point that it would be difficult to turn back, even if there was a temporary injunction.
One aspect of the rule that has been interpreted that wasn't previously clear involves the loans that are covered by the new rule. Attorney James Milano of Weiner Brodsky Sidman Kider, PC, pointed out that the rule only applies to closed end first or subordinate liens against a property. For reverse mortgages, this does apply to the full draw fixed rate HECM, but not to the adjustable products, which are considered open ended. The lenders representatives agreed and acknowledged that they do no plan on changing their policies for compensation related to the adjustable products.
Peter Sciandra of MetLife Bank, said the rule and its intent are essentially a good think for the industry. Although the lack of clarity has created confusion for the industry, the basis for the rule, he said, does promote ethical behavior within the industry and that is a good thing for how consumers perceive the industry. It suggests that originators will not base their advice to consumers on the products with the highest revenue, but truly on the products that derive the highest benefit to the consumers and meet their needs.
Due to the fact that the lenders are still finalizing how they will apply the rule, they were unwilling to provide specifics on what their compensation plans will look like. The general consensus was that they will be able to provide details within the next week, that will likely include trainings and/or webinars to help explain their new policies. The Federal Reserve is also holding a webinar on Thursday to help clarify compliance questions. The lenders said that they are looking at certain alternative compensation opportunities to support their programs. Additional programs may include additional compensation for meeting certain metrics such as loan quality bonuses. Also, they noted the potential for their being geographical considerations in compensation models to account for home values or other criteria.
Another concern involved complying with the Safe Harbor rule, which provides that originators have complied with the rule provided that they provide the borrower with a clear disclosure that shows 3 loans that meet three loan criteria. The options must include a loan that has the lowest cost, a loan that has the lowest interest rate and a loan with the lowest interest rate with no risky features. According to the rule, if a originator regularly delivers their loans to more than one lender, then they must provide the options from each of those lenders.
The common consensus was that the rule will be implemented on April 1st, as scheduled, but that it will evolve over the coming months. Lenders will strive to comply with the rule as best as they are able initially, but they generally expected that as additional information and clarification comes to light, they will be required to make adjustments. Change, as the saying goes, is a constant.