Loan Officer Compensation: Not Out of the Woods Yet

Last April, lending companies scrambled to implement loan officer compensation changes that went into effect under the Federal Reserve Board, mandated under the Dodd-Frank Act. With a brief delay pending the outcome of a lawsuit filed against the Fed for such changes, lenders began operating under the new rules just a week after the originally scheduled April 1 start date.

Now that the newly launched Consumer Financial Protection Bureau has authority over the rule, however, all that is subject to change—again. Whether the CFPB actually will decide to implement more change in 2012 remains an unknown, but it does have the power to do so, and it has made some indication that the loan originator compensation discussion is not yet over.

“We’re just looking for some clarity,” says Rod Alba, Vice President, Mortgage Finance & Senior Regulatory Counsel for the American Bankers Association. “I think a lot of our members halfway embrace [the changes] while also understanding they bring trouble.”

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The ABA recently listed loan officer compensation as No. 6 on its list of top-10 regulatory concerns this year, released in January. As long as the changes are done right, Alba says, they might not be such a bad thing. But in the meantime, uncertainty still plagues many lenders who have tried to adhere to the new rules as best as possible.

“Rather than engaging in an orderly process of clarification, questions have been lingering for a year and a half,” he says.

The rule, which says employers cannot compensate loan originators on the terms or conditions of a loan, can be confusing for types of compensation that do not relate directly to those terms, but for which they could indirectly come into play. One example is the holiday bonus—not directly based on loan terms, but being performance based, could be seen as such, Alba says.

Further, now that the CFPB has gained its full power and has begun to regulate all lenders, bank and nonbank, companies are subject to the CFPB’s determination of anything that falls under “unfair or deceptive” in terms of lending practices.

“If your compensation plan is found to violate some form [of the rule], you’re deemed unfair and deceptive,” Alba says. “That comes with massive levels of liability.”

ABA was present at an industry call with CFPB officials during which the agency indicated it would release guidance on the compensation issue by the end of the first quarter, Alba told RMD. Any guidance at that time could be followed by a comment period and rule making process, which could take several months. And while the CFBP has yet to enforce the rule, some lenders are left wondering.

“We’re in complete limbo until then,” Alba says.

Written by Elizabeth Ecker

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  • The CFPB, the “Wolf Patrol” I call them, will be at it again! I have been saying since the day the Financial Regulatory Reform Bill was signed into place that we would be paying the price dearly for a long time to come!

    I say this again, no one will be able to second guess what they will do next. I would not be to far off by saying, I would give you two to one odds they will be messing with the comp plan for the reverse mortgage industry!

    The powers and authority the CFPB has goes beyond what most of us realize. Further more, they do not understand our industry, they do not understand our mind set or passion we have for our seniors. How can the CFPB relate to how our comp plan is calculated or determined?

    The feds, thus far have created so much complexity for our industry and for our seniors as well as the loan officers. Wait and see what will be on the horizon for us over the CFPB’s actions???

    John A. Smaldone

    • John,
       
      With all due respect, “I told you so” is hardly the right response.  Most of us held the same view from the time Congress went to work on putting together a bill which would prevent or mitigate loss from another mortgage meltdown mess especially when the political party in control of Congress and the White House has the reputation of legislating regulation just for the sake of more bureaucracy and government control.  Much of Dodd-Frank lives up to that reputation.
       
      The bill was the creation of the Democratic Party with very controlled and limited input from Republicans despite statements of former Senator Dodd and other Democrats.  It was created specifically for reverse mortgages but nonetheless reverse mortgages will be impacted.
       
      If any proposal pits the interests of our industry against the forward industry, do not expect any support for our dinky industry from the MBA, ABA, NAMB, or other organizations whose majority members consist of forward lenders.  
       
      Since the CFPB has already stated that it will generally put consumer interests above the interests of the lender, we can hardly expect decisions which support our positions.  That was obvious from its name and the legislation itself.
       
      This law needs to be repealed with more appropriate oversight legislation replacing it. 

    • Do you have any evidence for your statement?  If you are saying that is your opinion, that is fine but you make no distinction.
       
      It has been clearly presented that those within the CFPB want some of our rhetoric muted such as the inane comments attributed to an officer over at One Reverse and published at Fox Business News today.  I do not blame them for that.  Every reasonable statement attributed to Peter Bell was absolutely undone by the dribble supposedly of the One Reverse executive.
       
      My worst impression of the staff at the CFPB is that they are biased by the idea that reverse mortgages should only be used as a loan of last resort.  I do not buy into the idea that they want reverse mortgages eliminated, just limited to a loan of last resort.

      I hope both you and I are wrong and they are much more open to viewing HECMs and reverse mortgages in a broader context.

  • Critic,

    “I told you so is not what I said”! I have said many times in the past and present that the “Financial Regulatory Reform Bill” MUST be repealed, so I agree with you on that part. In fact, join me in the fight to repeal the bill, it is the worst bill that has been passed.

    You made a statement, which is:

    ” My worst impression of the staff at the CFPB is that they are biased by the idea that reverse mortgages should only be used as a loan of last resort.  I do not buy into the idea that they want reverse mortgages eliminated, just limited to a loan of last resort”

    I do agree with that statement. However, because of their mind set and how they think, it falls back to what I have been saying, they are trying to eliminate the program! Ok, maybe they are trying to eliminate the reverse mortgage through being ignorant but never the less, they are doing a good job in eliminating it.

    Please, go to a website, it is:

    http://www.USA-GodandCountry-Petition.com

    This is a national petition catching on very quickly all around the country. It is a government reform proposal, which takes in 14 legislative demands. One of the demands talk in detail about the “Financial Regulatory Reform Bill”. Take the time to read the petition and the details, it takes a good hour to read the entire contents of the site but I know you will find it a very eye opening experience.The CFPB is an arm of this bill created from “Hell” that will haunt the financial industry until it is repealed my friend. I have read this entire bill and have been fighting it since its inception. I can only say this in closing, all of us in the reverse mortgage and the financial industry need to lobby against the bill and do everything we can to get it repealed!Thanks for taking the time to read this comment and my thanks to John and the Reverse Mortgage Daily Post!John Smaldone

  • Critic,

    “I told you so is not what I said”! I have said many times in the past and present that the “Financial Regulatory Reform Bill” MUST be repealed, so I agree with you on that part. In fact, join me in the fight to repeal the bill, it is the worst bill that has been passed.

    You made a statement, which is:

    ” My worst impression of the staff at the CFPB is that they are biased by the idea that reverse mortgages should only be used as a loan of last resort.  I do not buy into the idea that they want reverse mortgages eliminated, just limited to a loan of last resort”

    I do agree with that statement. However, because of their mind set and how they think, it falls back to what I have been saying, they are trying to eliminate the program! Ok, maybe they are trying to eliminate the reverse mortgage through being ignorant but never the less, they are doing a good job in eliminating it.

    Please, go to a website, it is:

    http://www.USA-GodandCountry-Petition.com

    This is a national petition catching on very quickly all around the country. It is a government reform proposal, which takes in 14 legislative demands. One of the demands talk in detail about the “Financial Regulatory Reform Bill”. Take the time to read the petition and the details, it takes a good hour to read the entire contents of the site but I know you will find it a very eye opening experience.The CFPB is an arm of this bill created from “Hell” that will haunt the financial industry until it is repealed my friend. I have read this entire bill and have been fighting it since its inception. I can only say this in closing, all of us in the reverse mortgage and the financial industry need to lobby against the bill and do everything we can to get it repealed!Thanks for taking the time to read this comment and my thanks to John and the Reverse Mortgage Daily Post!John Smaldone

  • Critic,

    “I told you so is not what I said”! I have said many times in the past and present that the “Financial Regulatory Reform Bill” MUST be repealed, so I agree with you on that part. In fact, join me in the fight to repeal the bill, it is the worst bill that has been passed.

    You made a statement, which is:

    ” My worst impression of the staff at the CFPB is that they are biased by the idea that reverse mortgages should only be used as a loan of last resort.  I do not buy into the idea that they want reverse mortgages eliminated, just limited to a loan of last resort”

    I do agree with that statement. However, because of their mind set and how they think, it falls back to what I have been saying, they are trying to eliminate the program! Ok, maybe they are trying to eliminate the reverse mortgage through being ignorant but never the less, they are doing a good job in eliminating it.

    Please, go to a website, it is:

    http://www.USA-GodandCountry-Petition.com

    This is a national petition catching on very quickly all around the country. It is a government reform proposal, which takes in 14 legislative demands. One of the demands talk in detail about the “Financial Regulatory Reform Bill”. Take the time to read the petition and the details, it takes a good hour to read the entire contents of the site but I know you will find it a very eye opening experience.The CFPB is an arm of this bill created from “Hell” that will haunt the financial industry until it is repealed my friend. I have read this entire bill and have been fighting it since its inception. I can only say this in closing, all of us in the reverse mortgage and the financial industry need to lobby against the bill and do everything we can to get it repealed!Thanks for taking the time to read this comment and my thanks to John and the Reverse Mortgage Daily Post!John Smaldone

    • John,

      Your second sentence in your own words:  “I have been saying since the day the Financial Regulatory Reform Bill was signed into place that we would be paying the price dearly for a long time to come!”  Perhaps you do not take as a “I told you so” remark but I do.

      But I agree with your view that the bill needs to be repealed but it also needs to be replaced.  The GSEs must have oversight.  The “Dodd thing” is just that.  It is a mess in part because the retired Senator was hampered by his own personal Countrywide fiasco.

      As to going to the website to back what is there, I need far more information.

      I support your stated goal but I am just leery of websites  based solely on their contents. 

    • John,

      Your second sentence in your own words:  “I have been saying since the day the Financial Regulatory Reform Bill was signed into place that we would be paying the price dearly for a long time to come!”  Perhaps you do not take as a “I told you so” remark but I do.

      But I agree with your view that the bill needs to be repealed but it also needs to be replaced.  The GSEs must have oversight.  The “Dodd thing” is just that.  It is a mess in part because the retired Senator was hampered by his own personal Countrywide fiasco.

      As to going to the website to back what is there, I need far more information.

      I support your stated goal but I am just leery of websites  based solely on their contents. 

      • Critic,

        I understand where you are coming from. I guess I did sound a bit like an “I told you so”! However, even if I did, you have to admit, what is taken place is what I had warned about.

        I do agree with you that we need to not only repeal the bill but replace it as well. We need some form of a “Financial Regulatory Reform ” bill but not as this one is written!

        You make good points, we both do, that is why we make a good team:)

        You make it a great day,

        John A. Smaldone

      • Critic,

        I understand where you are coming from. I guess I did sound a bit like an “I told you so”! However, even if I did, you have to admit, what is taken place is what I had warned about.

        I do agree with you that we need to not only repeal the bill but replace it as well. We need some form of a “Financial Regulatory Reform ” bill but not as this one is written!

        You make good points, we both do, that is why we make a good team:)

        You make it a great day,

        John A. Smaldone

  • NO one should dictate to any one when they can do something to enhance their position.  To say a reverse mortgage should only be used as a last resort is borderline facism.  This is America and people make their own decision for them selves. If a person chooses to do a reverse mortgage that is their right! and no one has the right to interfer, NO ONE!  America is the land of the FREE and slavery is not an option!

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