Magazine article Mortgage Banking

Small-Business Lenders and Loan Officer Compensation

Magazine article Mortgage Banking

Small-Business Lenders and Loan Officer Compensation

Article excerpt

In May, I was fortunate to participate on the Mortgage Loan Origination Standards small business review panel convened by the Consumer Financial Protection Bureau (CFPB), which covered the topics of mortgage loan originator (MLO) compensation and qualifications. The Dodd-Frank Wall Street Reform and Consumer Protection Act requires CFPB to hold small business review panels, like this one, when their proposals have the potential to adversely impact small businesses.

I attended the panel with about two dozen lending executives from independent mortgage banks (including another member of the Mortgage Bankers Association [MBA]), community banks, credit unions, nonprofit lenders and mortgage brokers. As a small mortgage lender, my company faces unique challenges in recruiting and retaining qualified MLOs to ensure the provision of superior service and sustainable credit to consumers, and I was excited and honored to share my views with the CFPB.

The information the CFPB gave us to review Wasn i a formal proposal, but rather a discussion outline. This distinction, however, did not make the attendees take the suggestions any less seriously. The CFPB's outline included significant changes to origination charges, discount points, price concessions, point banks, proxies, MLO qualifications and other policies. Changes in these areas would have a tremendous impact on my business and could make competition among lenders of various sizes unfair.

The CFPB issued its proposed mortgage loan originator rules just as this column was going to press, so we will know how it came out on some of these issues in the coming weeks. Here are my views on the three areas of the small business review panel outline that have received a lot of attention: origination charges, discount points and price concessions.

Origination charges

I truly appreciate the fact that the CFPB recognizes that the restrictions against upfront points and fees under Dodd-Frank may unduly constrain the mortgage market and harm consumers. Dodd-Frank arguably contains a complete prohibition against a consumer paying any upfront discount points and origination points or fees to a lender or brokerage if the lender or brokerage also pays the originator for the loan. The law fortunately provides authority for the CFPB to waive or provide exemptions from this restriction.

The exemption discussed in the proposed outline would only allow consumers to pay: bona fide discount points that actually lower the loan rate; and 2) origination fees that are flat and do not vary with loan amount, if the loan originator is also paid for the transaction. The CFPB cited concern that borrowers confuse origination charges with discount points as the basis for requiring a flat fee.

At the meeting and subsequent conference calls, I explained that the costs of originating a mortgage are not arbitrary and that they are not static. I illustrated this in a follow-up letter I wrote to CFPB: The costs of originating a loan are not limited to the cost of loan officers, but also include underwriters and secondary market staff as well as building, equipment, technology services and other overhead costs that my company charges through origination fees that vary based on the amounts of borrowers' loans.

switching to a business model where we only charge a flat fee for origination would force us to arrive at an average origination fee for all loans. This would result in lower-income borrowers with smaller loan amounts subsidizing the loans of wealthier borrowers with higher loan amounts. …

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