WASHINGTON (1/22/13)--The Consumer Financial Protection Bureau issued rules to prevent unscrupulous mortgage loan originators (MLO) from generating higher compensation for themselves by steering borrowers into risky and high-cost loans.
The CFPB's final rules:
- Broaden the application of prohibitions on compensation that varies with the loan terms. For instance, an MLO should not be paid more if the consumer takes a loan with a higher interest rate, a prepayment penalty, or higher fees;
- Prohibit "dual compensation": Under the CFPB's rules, the loan originator cannot get paid by both the consumer and another person such as the creditor; and
- Set qualification and screening standards: An MLO must meet character, fitness, and financial responsibility reviews, pass a criminal background check, be screened for felony convictions; and undertake training to ensure they have the knowledge about the rules governing the types of loans they originate.
The final rule also implements Dodd-Frank provisions that, for mortgage and home equity loans, generally prohibit mandatory arbitration of disputes related to mortgage loans and the practice of increasing loan amounts to cover single premium insurance premiums.
One area in the proposal that concerned the Credit Union National Association was the use of proxy factors to determine whether the rules apply to compensation plans. The final rules clarify that the proxy factors are ones that consistently vary over a significant number of transactions and that the loan originator has the ability to add, drop or change the factor.
The new rule, required under the Dodd-Frank Act, is available on the CFPB website (use the resource link) and was issued Sunday, Jan. 20. CUNA's Regulatory Advocacy team will be reviewing the final rule and providing an analysis.