Magazine article American Banker

Examiner Guidance Issued

Magazine article American Banker

Examiner Guidance Issued

Article excerpt

Byline: Brian Collins

State regulators have issued guidelines to mortgage examiners on how to test state-licensed nonbanks for steering and other violations of the Federal Reserve's loan origination compensation rule.

The Fed's loan officer rule is designed to prevent mortgage brokers and other table funders from engaging in unfair and abusive practices that increase their compensation at the expense of consumers.

"The purpose of the guidelines is to provide the examiner with a standardized set of procedures to reviewing institutions for basic compliance with the rule," according to the Conference of State Bank Supervisors, American Association of Residential Mortgage Regulators and National Association of Consumer Credit Administrators.

The loan officer rule prohibits "dual compensation" where a mortgage broker is paid by both the wholesaler and borrower. (Under current rules a mortgage broker can be compensated by either the wholesaler or borrower - but not both.)

The guidance advises examiners to test if the borrower has paid any fees to the broker and then check to see if any other person has made a payment to the broker or his loan officers.

Besides interviewing management, examiners should review samples of Department of Housing and Urban Development settlement statements, loan documents (particularly where yield spread premiums are paid) and payroll records to find evidence of dual compensation.

The Fed rule also prohibits mortgage brokers and their loan officers from steering borrowers into loan products that increase their compensation. …

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