Legal existence and foreign qualification. Creditors gain from that information and will respond to such differences in behavior. Notwithstanding comment 36(d)(1)-5, 1026.36(d)(1) does not prohibit loan originators from decreasing their compensation to cover unanticipated increases in non-affiliated third-party closing costs that result in the actual amounts of such closing costs exceeding limits imposed by applicable law, provided that the creditor or the loan originator does not know or should not reasonably be expected to know the amount of any third-party closing costs in advance. Second, it would eliminate an potential source of misinterpretation by consumers by essentially precluding originators from using the term points when referring to both origination points (charges to the borrower for originating the loan) and discount points (charges to the borrower that are exchanged for future interest payments). For example, for transactions that are subject to proposed 1026.36(d)(2)(ii), the loan originator must disclose the loan with the lowest rate that does not include discount points and origination points or fees for which the consumer likely qualifies. Senior management and the board of . Moreover, certain creditors and loan originator organizations will need to conduct training and screening for individual loan originators. For example, if a person closes a loan in its own name but does not fund the loan from its own resources or deposits held by it because it immediately assigns the loan [at]after consummation, it is considered a creditor for purposes of Regulation Z and also a loan originator for purposes of 1026.36. the one-time burden is estimated to be roughly 265 hours. See the SBREFA Final Report, at app., appendix D, slide 38 (PowerPoint slides from the Panel Outreach Meeting, Topic 7: Impact on the Cost of Business Credit). 12 U.S.C. The Federal Reserve Board on July 18, 2011 issued a consent cease and desist order and assessed an $85 million civil money penalty against Wells Fargo & Company of San Francisco, a registered bank holding company, and Wells Fargo Financial, Inc., of Des Moines. For example, loan originators cannot change a property's location, thus property location cannot be a proxy for a transaction's terms. The Bureau is proposing a revision to this comment. Specifically, for mortgage loans in which a brokerage firm or creditor pays a loan originator a transaction-specific commission, the Dodd-Frank Act would ban the imposition on consumers of discount points, origination points, or other upfront origination fees that are retained by the creditor, broker, or an affiliate of either. E. Employer contributions to qualified plans. [89] Later, at the end of the month, the cost for the credit report is determined to be $15 for this consumer's transaction. The existence of two types of fees and the many names lenders use for origination feessome of which may appear to be more negotiable than othershas the potential to confuse consumers. The analysis below considers the benefits, costs, and impacts of the following major proposed provisions on small entities: 2. 2. Dodd-Frank Act section 1403 amended TILA section 129B by imposing two limitations on loan originator compensation to reduce or eliminate steering incentives for residential mortgage loans. Conversely, if loans prepay more slowly than expected, or default at lower rates than expected, the investor will earn a higher return over time than expected. (2) Records related to requirements for loan originator compensation. These data were used, along with data Start Printed Page 55341from HMDA, to help estimate the number and characteristics of non-depository institutions active in various mortgage activities. 1638); (vi) The disclosure provided to comply with section 4 of the Real Estate Settlement Procedures Act of 1974 (12 U.S.C. For example[,]: A. 2, 2012), available at: http://files.consumerfinance.gov/f/201204_cfpb_LoanOriginatorCompensationBulletin.pdf. The Bureau also solicits comment on the appropriate threshold amount if the Bureau were to adopt a total compensation test. Thus, currently under 1026.24(d)(2), if a creditor includes in an advertisement the interest rate that applies to a loan that includes discount points and origination points or fees, the creditor must include in that advertisement the following terms related to that loan: (1) The amount or percentage of the downpayment; (2) the terms of repayment, which reflect the repayment obligations over the full terms of the loan, including any balloon payment; and (3) the annual percentage rate, using that term and, if the rate may be increased after consummation, that fact. Conversely, the elimination of the option to pay upfront points and fees could, depending on the extant risk in creditors' portfolios and their perceptions of differential risk between neighborhoods, seriously reduce the access to mortgage credit for some portion of consumers. In some cases, the Bureau expects that one rulemaking may raise an issue and yet may not be the rulemaking that is most appropriate for Start Printed Page 55279addressing that issue. 111. Such information is sufficient to meet the requirement to obtain a criminal background check in this proposed rule. The Bureau conducted extensive outreach in developing the provisions in this proposed rule. Some small non-profit organizations originate mortgage loans for low and moderate-income individuals while others purchase loans originated by local community development lenders. Specifically, the proposal would: The proposal would allow reductions in loan originator compensation to cover unanticipated increases in closing costs from non-affiliated third parties under certain circumstances. The final rule implements the Dodd-Frank Act and clarifies the scope of the rule as follows: and Budget, Final Report of the Small Business Review Panel on CFPB's Proposals Under Consideration for Residential Mortgage Loan Origination Standards Rulemaking (July 11, 2012) (Small Business Review Panel Final Report), available at: http://files.consumerfinance.gov/f/201208_cfpb_LO_comp_SBREFA.pdf. Section 1026.36(d)(1)(iii)(B)(1) permits compensation to an individual loan originator in the form of a bonus or other payment under a profit-sharing plan or a contribution to a defined contribution or benefit plan other than a qualified plan even if the payment or contribution is directly or indirectly based on the terms of multiple individual loan originators' transactions subject to 1026.36(d), if certain conditions are met. 93. Most historical experience, along with the size, liquidity, and pace of innovation in the United States mortgage markets, make such an event unlikely. 5 U.S.C. TILA section 129B(c)(2)(A) states that, for any mortgage loan, a mortgage originator generally may not receive from any person other than the consumer any origination fee or charge except bona fide third-party charges not retained by the creditor, mortgage originator, or an affiliate of either. For the requirement extending the record retention requirement for creditors from two years, as currently provided in Regulation Z, to three years, the Bureau assumes that there is not additional marginal cost. For example, in transactions that do not involve a loan originator organization, should creditors be required either to make the comparable, alternative loan available to the consumer if the consumer likely qualifies for that loan or to inform consumers that the creditor is not making the comparable, alternative loan available because the consumer is unlikely to qualify for that loan? TILA is implemented by the Bureau's Regulation Z, 12 CFR part 1026, though historically the Board's Regulation Z, 12 CFR part 226, has implemented TILA.[31]. Nonetheless, TILA section 129B(c)(2) does not restrict a mortgage originator from receiving payments from a person other than the consumer for bona fide third-party charges not retained by the creditor, mortgage originator, or an affiliate of the creditor or mortgage originator, even if the mortgage originator receives compensation directly from the consumer. The Bureau also notes that Regulation G, which implements the SAFE Act, contains a requirement that all covered financial institutions (including banks, savings associations, Farm Credit System institutions, and certain subsidiaries) adopt and follow certain policies and procedures related to SAFE Act requirements. For example, a person may not award additional stock or a preferable type of equity interest to an individual loan originator based on the terms of a consumer credit transaction subject to 1026.36(d) and (e) originated by that individual loan originator. H. Individual loan originators who originate five or fewer mortgage loans. Requirement That All Creditors Make Available a Comparable, Alternative Loan, 2. The Bureau recognizes that creditors who do not wish to make loans that do not include discount points and origination points or fees available to particular consumers could possibly manipulate their underwriting standards so that those consumers do not qualify for such a loan. Services, Sponsorship for Priority Telecommunication Services, Supervision & Oversight of Financial Market
In addition, if any loan originator is paid compensation directly by the consumer in a transaction, no other loan originator may receive compensation in connection with the transaction from a person other than the consumer. Discount points are also valuable to creditors (and secondary market investors) for another reason: Because payment of discount points signals the consumer's expectations about how long he or she expects to stay in the loan, they make prepayment risk easier to predict. Qualification Requirements for Loan Originators, 4. This guidance parallels that in existing comment 36(d)(1)-1. The SERs believed an automatic sunset could be disruptive to the market.Start Printed Page 55312. The profit-sharing plan applies to the affiliate when, for example, the funds used to pay a bonus to an individual loan originator are the same funds used to pay a bonus to employees of the affiliate. Profit-sharing plans, moreover, are a means for individual loan originators to become invested in the success of the organization as a whole. In the final rule, the Bureau noted that the proposed definition of annual receipts is adapted in part from the existing measure used by the U.S. Small Business Administration (SBA) for its small business loan programs. There is a breakeven moment in time where the present value of a reduction/increase to the rate just equals the corresponding upfront points/credits. In this situation where the efficiency of the market is only impaired by adverse selection, this increase in creditor returns is independent of whether the creditor sells loans in the secondary market or chooses to engage in hedging to hold these mortgages in portfolio. That said, the Bureau recognizes the challenges of developing a clear and practical standard to determine whether the particular compensation method creates incentives for individual loan originators to steer consumers into different loan terms. CFPB Bulletin 2012-2 stated further that guidance on the payment of compensation out of profits generated by mortgage loan originations would be forthcoming. 39 . The Bureau believes that this exception for bona fide and reasonable third-party charges means that Congress presumptively intended to include such third-party charges in the definition of discount points, origination points, or fees where they are retained by the creditor, mortgage originator, or affiliates of either. 18. 5512, 5581; 15 U.S.C. The proxy proposal under consideration presented to the SERs during the Small Business Review Panel process stated that a factor is a proxy if: (1) It substantially correlates with a loan term; and (2) the MLO has discretion to use the factor to present a loan to the consumer with more costly or less advantageous term(s) than term(s) of another loan available through the MLO for which the consumer likely qualifies. After further consideration, the Bureau believes the proxy proposal contained in this proposed rule would be easier to apply uniformly and would better addresses cases where the loan originator does not use the factor than the specific proposal presented to the Small Business Review Panel. 1639b(c)(1). These stated purposes are tied to Congress's finding that economic stabilization would be enhanced and the competition among the various financial institutions and other firms engaged in the extension of consumer credit would be strengthened by the informed use of credit. TILA section 102(a). [Compensation. Thus, the revised comment clarifies that a loan originator may not agree to reduce its compensation or provide a credit to the consumer to pay a portion of the consumer's closing costs, for example, to avoid high-cost loan provisions. [70] Notwithstanding the provisions of subparagraph (d)(3) of this section, the revenues of the person's affiliates are not taken into account for purposes of this paragraph, provided that, if the profit-sharing plan applies to the affiliate, then the person's total revenues for purposes of this paragraph also include the total revenues of the affiliate. Changes to the advertising rules under Regulation Z are unlikely to raise specific costs of compliance for small entities, apart from those costs associated with learning about and adjusting to any new regulations. If more than one individual meets the definition of a loan originator for a transaction, the NMLSR ID of the individual loan originator with primary responsibility for the transaction at the time the loan document is issued must be included. This site displays a prototype of a Web 2.0 version of the daily 12 U.S.C. These forms include data on some or all loan characteristics including settlement charges, origination charges, appraisal fees, flood certifications, mortgage insurance premiums, homeowner's insurance, title charges, balloon payment, prepayment penalties, origination charges, and credit charges or points. Specifically, TILA section 129B(c)(2)(B)(ii) uses the phrase upfront payment of discount points, origination points, or fees, however denominated (other than bona fide third party charges not retained by the mortgage originator, creditor, or an affiliate of the creditor or originator). The Bureau interprets the phrase upfront payment of discount points, origination points, or fees, however denominated generally to mean finance charges (except for interest) that are imposed in connection with the mortgage transaction that are payable at or before consummation by the consumer. Profits include all revenue generated from closed-end consumer credit transactions secured by dwellings that you or your affiliate originates, including: Origination fees; Interest ; Income from servicing ; and Proceeds earned from secondary market sales. In addition, if any loan originator is paid compensation directly by the consumer in a transaction, no other loan originator (such as an employee of a loan originator organization) may receive compensation in connection with the transaction from another person. Sections 1402 and 1403 of the Dodd-Frank Act, codified at 15 U.S.C. It may therefore be appropriate in this context to apply the SAFE Act definition of depository institution either as an interpretation of TILA section 129B(b)(2) or as an exercise of the Bureau's authority under TILA section 105(a). A civil action to enforce certain TILA provisions (including section 129B) brought by a State attorney general has a three year statute of limitations. Thus, TILA section 129B(c)(1) imposes a ban on compensation that varies based on loan terms even in transactions where the mortgage originator receives compensation directly from the consumer.
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