CFPB LO Comp Proposal Gets Applaud, Will it Cause Reverse Mortgage Problems?

In response to a recent rule proposed by the CFPB that would change the way mortgage loans are originated, many forward originators are applauding the efforts of the agency, while the impact on the reverse mortgage business remains to be seen.

The National Association of Mortgage Brokers (NAMB) stated publicly on behalf of its members that the new rule would help consumers and originators.

“NAMB was very pleased with the CFPB and their efforts to benefit consumers in their release of the proposed LO Comp rule [in August],” said Donald Frommeyer, current NAMB President. “It seems that the CFPB wants to provide clearer options to the consumer and make it easier for them to comparison shop and understand loan options between different companies. And knowing that all Loan Originators must pass the same qualifications will prove to be another benefit to all consumers.”

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The organization further stated it has always felt that all originators should be licensed and qualified the same across the board, leading to greater accountability.

Likewise, the Mortgage Bankers Association shared a similar sentiment in its response to the rule, which involves offering a no-point, no-fee loan option as one of the choices offered to borrowers when deciding on the type of mortgage they would like.

“MBA applauds the Bureau’s efforts to protect borrowers by eliminating steering and the proposed rule appears to be a good step in that direction. Consumers benefit from a vibrant and competitive mortgage market with a diversity of players, and this rule, as it relates to loan originator qualification and screening, should ensure a level playing field for originators, regardless of business model,” MBA President David Stevens said in a statement.

The impact on the reverse mortgage market is less known, however.

One thought is that because the Federal Housing Administration’s Home Equity Conversion Mortgage program does not allow for discount points, eliminating origination fees could put upward pressure on the loan’s interest rate, thus leading to less funds available for the borrower.

In the past, many lenders have offered no-origination fee loans, yet many have reintroduced the fees in recent months.

Another group concerned about the compensation: credit unions. The no-points, no-fee option has left them wondering how they will compensate their loan originators, according to a report by HousingWire.

Written by Elizabeth Ecker

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  • Other than during time of war (such as WWII), wage and price controls don’t actually protect all the consumers.  They sound good when the politicians talk about them real fast.  But a segment of the market always gets cut out.  Consumers in that segment have their options reduced by someone in Washington. That segment of the consumers gets screwed. 

    This batch of wage and price controls is just the same wine in a different bottle.  This batch of wage and price controls will not work just like the last batch of wage and price controls didn’t work. 

    Unless of course, work is defined as helping a politician keep his job.

  • This government is doing what it intends to do — divide and conquer. What better way than to get forward LOs to be in conflict with reverse originators. Forward mortgage LOs can then join with Real Estate folks against the whole idea of the reverse mortgage and viola — everybody gets rid of one of their pet competitors. That’s why government doesn’t want to talk to RM borrowers. That would cloud the issues. On to new government, and less of this insider brokering against RM LOs.

  • I can understand why the MBA and NAMB would be delighted to see the the reverse mortgage industry become more on parity with the forward mortgage world.

    However, what many in the forward world fail to understand is the senior market and how frail it actually is! When we look back 5 to 7 years ago we find that reverse mortgages were not a competitive product to be shoped from one lender to another.

    Our product rates and fees were regulated, not by the origination company but by HUD. We had no live pricing back then, we did not have a sliding rate scale to determine how much we could make off of a senior. We did not have a fixed rate product that could pay as much as 9 points and more on a back end, providing you sold a high enough rate. No, we did not have this kind of tempting tool to make $10,000 and $20,000 on a loan.

    Our seniors were more protected then against predatory lending and the market games played today. The CFPB wants to protect our seniors through many, many changes and over regulations. Why don’t they realize that they are putting our seniors only in harms way!

    If the CFPB wants to do anything to protect the senior, to regulate the comp plans and reduce predatory lending,they need to roll the clock back. They need to stop all of what they are doing and simply go back to what we were!!!!

    Thank you my friends,

    John A. Smaldone

  • I am not sure I really understand this? So they want a no point – no fee option is this really hard? Can you not give them an iterest rate that is high enough to cover this? It is there choice, higher interest rate- no cost, lower interest rate-cost. I know I am missing something, what is it?
    And what are they going to do to level the playing field so that brokers can use the YSP to pay for fees like banks can? Why is this never brought up? It is the biggest rule that keeps it from being a level playing field. Am I the only one that sees this?

  • Correction: NAMB is an acronym for the National Association of Mortgage Brokers.

    The regulatory trend of handling reverses more like a forward mortgage is what started the pendulum swinging to rules that favored large-scale operations with low per capita overhead and economies of scale. More of the same is unlikely to undo the damage done to marketing, quality and flexibility.

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