WASHINGTON (2/5/13)--The impact of Consumer Financial Protection Bureau Mortgage Loan Originator (MLO) rule changes of course will vary depending on a credit union's own unique circumstances, Credit Union National Association Deputy General Counsel Mary Dunn wrote in a final rule analysis.
The new rule is intended to prevent unscrupulous MLOs 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.
The provisions on mandatory arbitration and credit insurance premium financing will take effect in June 2013. The remaining provisions are effective in Jan. 2014.
Credit unions and other residential mortgage lenders are required to be in compliance with the rule, but a number of the provisions are already required for financial institutions, CUNA notes. The impact on credit unions will generally be confined to areas such as training for mortgage loan originators, and to the extent credit unions engage in such practices, provisions regarding mandatory arbitration and the financing of credit insurance premiums.
Credit unions will also need to make sure they establish compliance procedures and recordkeeping requirements addressed in the rule, Dunn wrote.
For the full final rule analysis, use the resource link.