WASHINGTON (8/23/12)--The mortgage lending industry is still analyzing how the Consumer Financial Protection Bureau's (CFPB) new mortgage origination proposal could impact their business practices and the Credit Union National Association's (CUNA) Consumer Protection Subcommittee, Lending Council and Housing Finance Reform Task Force will be asked to weigh in to help shape the association comments on the proposal.
The 369-page CFPB proposal, which addresses loan origination standards and compensation rules for mortgage loan officers (MLOs), was issued last week.
Under one part of the CFPB proposal, MLOs would be subject to federal character, fitness and financial responsibility screenings, and also be screened for felony convictions. The screening standards would require credit unions and other institutions to pull credit reports on employees before they are hired and perform criminal background checks to uncover any potential instances of dishonesty, money laundering or breach of trust, or other felony convictions that have been charged in the past seven years.
Credit unions will not be required to focus on an individual's credit score during the credit check, but rather on whether or not they have used credit in a responsible and honest fashion.
Overall, the CFPB proposal states that financial institutions will need to determine that their existing and incoming MLOs have demonstrated the financial responsibility and character to indicate that they will "operate honestly, fairly and efficiently" in their position.
The agency's proposed mortgage loan originator qualification and screening standards would replace varied state and federal Secure and Fair Enforcement for Mortgage Licensing Act (SAFE Act) standards for loan originators working at credit unions, banks, thrifts, mortgage brokerage firms and nonprofit organizations with a single federal standard.
Financial institutions would also need to provide continuing education courses relating to mortgage loan origination to their MLOs that are not licensed under the SAFE Act. Training courses must cover applicable federal and state law requirements. Training may be provided online, and MLO training approved by the Nationwide Mortgage Licensing System and Registry would meet the potential CFPB training requirements.
Jared Ihrig, CUNA's senior assistant general counsel, said credit unions will more than likely satisfy these screening and training requirements by doing what they are, in most cases, already doing. However, CUNA is continuing to study the details of the proposed rule. Credit unions' training regimes will need to address federal and state law requirements that pertain to the actual MLO's activities.
He also noted that the CFPB proposal would not require registered MLOs to sit for and pass the same certification test that is required of licensed MLOs.
Part of the CFPB mortgage origination proposal also addresses how MLOs are compensated.
MLO bonuses based on the terms of loan transactions would still be banned, but financial institutions could compensate MLOs in certain circumstances utilizing mortgage loan revenues in some instances, such as credit unions' contributions to MLOs' qualified 401(k) plans, employee stock plans and other types of "qualified" deferred compensation plans if certain requirements are met.
Some of the proposed compensation elements of the rule would allow for compensation to MLOs in instances where the MLO has made five or fewer mortgage loan originations in the past year, and in other instances where financial institutions' revenues from mortgage loan origination activities do not exceed certain percentages of their total revenues. The CFPB has considered two different thresholds for this percentage: 25% and 50%.
The proposal will remain open for public comment until Oct. 16. A final version of the proposal will be released in January, according to the CFPB.
For more on the CFPB proposal, use the resource link.