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HousingWire Magazine: December 2021/ January 2022

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Mortgage

CFPB considering changes to loan originator compensation rules

Bureau indicates changes could be coming to LO comp rules

The Consumer Financial Protection Bureau revealed recently that it is considering making changes to the Loan Originator Compensation rule.

Late last week, the CFPB released its semiannual regulatory agenda, which stated that the bureau is considering a rulemaking to “address certain concerns” about the LO Comp rule.

According to the bureau, it has received feedback that parts of the LO Comp rule are “unnecessarily restrictive,” and is considering making some changes to address those concerns.

The LO Comp rule dictates how loan originators are paid. The rule was enacted after the financial crisis to eliminate the practice of LOs steering borrowers into costlier loans in order to earn higher pay.

But the rule and how it is structured has long been an issue for the mortgage industry.

Last year, almost 250 senior executives at some of the nation’s largest mortgage companies sent a letter to the CFPB, asking the bureau to make changes to the LO Comp rule.

According to the group, the LO Comp rule as currently written, “causes serious problems for industry and consumers due to its inflexible prohibitions on adjusting compensation and its amorphous definition for what constitutes a proxy for a loan’s term or conditions.”

The group asked the CFPB to allow LOs to voluntarily reduce their compensation to allow them to compete more fairly in the market, asked to be able to reduce LO compensation if an LO makes an error in the loan process, and requested the ability to pay varying compensation on loans through state Housing Finance Agencies.

It looks like those execs may get two out of three on their wish list, because according to the CFPB, it now plans to consider making changes on two of those issues.

“In particular, the Bureau plans to examine whether to permit adjustments to a loan originator’s compensation in connection with originating State housing finance authority loans in order to facilitate the origination of such loans,” the CFPB said in its regulatory agenda.

“The Bureau also plans to examine whether to permit creditors to decrease a loan originator’s compensation due to the loan originator’s error in order to provide clearer rules of the road for regulated entities,” the CFPB continued.

So, while the bureau is not looking to make any changes to the LO Comp rule in terms of allowing LOs to decrease their compensation to foster competition, the bureau is considering making changes to the compensation policy if an LO makes an error or if an HFA is involved.

To that point, the CFPB stated that it has “no current plans to consider other significant potential changes” to the LO Comp rule.

Nevertheless, the way that LOs are paid could soon change.

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