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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.”

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