The most recent update on loan originator compensation rules outlined by the Consumer Financial Protection Bureau could be “problematic” for reverse mortgage lenders.
The rules, which are expected to be proposed formally this summer and finalized by January 2013, will make additional changes to the loan originator compensation rule issued by the Federal Reserve Board in April 2011.
National Reverse Mortgage Lenders Association counsel explained in a memo to NRMLA members why the changes need some clarification and change for their application to reverse mortgage loans.
Dodd-Frank allows loan officers to be paid by consumers but does not allow for an upfront payment of origination points or fees other than third-party fees not retained by the creditor, the loan originator or either company’s affiliates, writes NRMLA legal counsel, Weiner, Brodsky, Sidman, Kider, PC in the memo. It basically provides that if a lender will pay a broker “back end fees,” the consumer could not have paid upfront points in the transaction. The restriction is known as the “points and fees provision,” the memo states.
The Bureau can create exemptions to the “points and fees provision” if it finds that such action is “in the interest of consumers and in the public interest,” the memo explains. With respect to creditor paid compensation, the CFPB has stated it is considering exercising its exemption authority to issue a partial exemption to the “points and fees provision” and would permit consumers to pay certain upfront points and fees in retail and wholesale loan transactions when the creditor compensates an LO, as long as the origination fees are “flat” and do not vary with the size of the loan, the memo continues.
“This proposal would be problematic for HECMs because the HECM origination fee is set by statute and based on the loan amount,” writes Weiner, Brodsky, Sidman, Kider. “NRMLA is reaching out to Bureau personnel regarding this issue.”
View the new rules under consideration.
Written by Elizabeth Ecker