As the implementation date (April 1) for the Federal Reserve Board’s originator compensation rule draws closer, the National Reverse Mortgage Lenders Association is requesting additional clarification on how the rule applies to the industry.
Specifically, NRMLA is asking the Fed to define the “amount of credit extended” on reverse mortgages and suggests it should be the maximum claim amount, rather than initial principal limit.
“If loan originator compensation is based on the initial unpaid principal balance of the loan, as opposed to the maximum claim amount we are concerned that there will be an incentive at the loan originator level to dissuade seniors from considering a HECM Saver where appropriate,” said Peter Bell, president of NRMLA in a letter to the Fed.
Released by the Department of Housing and Urban Development in October of last year, the HECM Saver provides borrowers less in proceeds at a lower cost. If the Fed bases compensation on the initial unpaid principal balance of the loan, it could reduce the number of HECM Saver loans originated and potentially result in steering—the behavior the rule is trying to stop.
“Having one clear definition under the Loan Originator Compensation Rule of the amount of credit extended for reverse mortgages would be of great benefit to the industry at this time and going forward,” Bell said.
In addition, NRMLA is requesting the Fed confirm that subject to reasonable and documented business reasons, a creditor may establish commission structures for loan originators with different amounts for conventional, FHA loans, and specifically FHA insured HECM loans as compared to other loan types based on differences in cost and time to originate.
“Reverse mortgage origination professionals generally spend a much greater time educating seniors about the reverse mortgages and the reverse mortgage process, as opposed to mere selling of typical forward mortgage items such as rates and payment amounts,” said the letter. “We respectfully request that this informal guidance be extended, in writing, to FHA-insured HECMs as compared to “forward” FHA-single family loans or other “forward” conventional residential mortgage loans, as long as such variance in compensation is not based on a loan term or condition or proxy for a loan term or condition and the creditor documents the difference in cost and time to originate such reverse mortgages.”
To view a copy of the letter, see here.