CHLA urges CFPB action on dual compensation arrangements

Dual compensation processes can be harmful to consumers: CHLA

The Community Home Lenders of America (CHLA) sent a letter on Thursday to the Consumer Financial Protection Bureau (CFPB) that urges the agency to adopt and implement a series of rules to protect homebuyers from so-called “dual compensation” arrangements during the homebuying process.

Dual compensation refers to an instance in which a single individual or entity is in control of both brokerage and loan origination functions and are compensated for real estate transactions in which they represent the buyer or the seller and act as the originator on the mortgage loan used to purchase the home.

This structure could lead to conflicts that may cause harm to a person seeking to buy a home, according to the CHLA.

“CHLA members continue to study this issue, under a framework that balances the potential benefits of dual compensation flexibility with concerns regarding potential conflicts of interest,” the organization said in its letter addressed to CFPB Director Rohit Chopra. “However, CHLA members are unified on the importance of certain consumer protections with regard to such practices.”

Dual compensation arrangements are permitted in certain circumstances under rules from the Federal Housing Administration (FHA) and government-sponsored enterprises (GSEs). However, the CHLA is asking the CFPB to adopt rules that would make the arrangement clearer to consumers as they enter into homebuying arrangements.

“We believe it is appropriate for the Bureau to establish a uniform disclosure requirement clearly identifying the dual compensation and making it clear that the buyer of the home is under no obligation to use the mortgage services of the loan originator engaging in dual compensation,” the letter states.

The CHLA also makes a couple of potential policy recommendations on the matter to align with the Secure and Fair Enforcement for Mortgage Licensing Act (SAFE Act).

These recommendations state that “no mortgage loan originator should be allowed to receive dual compensation in conjunction with a mortgage loan unless that individual is licensed pursuant to SAFE Act requirements,” and that “no loan originator should be allowed to receive dual compensation in conjunction with any mortgage loan if that loan originator is also simultaneously representing the seller (individually) in a real estate transaction.”

The risks to consumers, the CHLA said, are clear, as the majority of bank loan originators have not “passed the SAFE Act test” — with some institutions actively failing it. However, the CFPB rules include a statutory requirement that all loan originators must be “qualified.”

“[L]oan originators working at a bank that fail to meet these basic licensing requirements continue to be permitted to act as a loan originator” under CFPB rules, the CHLA said. “Moreover, there are no consumer disclosure requirements that a loan originator either failed or never passed the basic SAFE Act test.”

In addition to Chopra, the letter was also sent to FHA Commissioner Julia Gordon and FHFA Director Sandra Thompson.

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