Magazine article American Banker

CFPB Cracks Down on Mortgage Lenders' Compensation

Magazine article American Banker

CFPB Cracks Down on Mortgage Lenders' Compensation

Article excerpt

Byline: Rachel Witkowski

WASHINGTON -- The Consumer Financial Protection Bureau continued to release a series of rules overhauling the mortgage system this week, unveiling new regulations on Friday that restrict compensation for loan originators and establish specific qualifications for mortgage brokers and loan officers.

One rule largely bans compensation to mortgage originators based on loan terms, including a higher interest rate or generally a high-cost loan. The agency said the rule is meant to prevent originators from wrongfully placing borrowers into risky loans in order to get higher payouts.

"One of the reasons for the collapse was that mortgage borrowers were steered towards high-cost and risky loans they had no real chance of paying back," said CFPB Director Richard Cordray in a conference call Friday. "The higher the interest rate on the loan or the more the consumer paid in upfront charges, the more the loan originator profited."

Under the final rule, the CFPB will prohibit loan originators -- including mortgage brokers and loan officers -- from:

The rule also prohibits originators from including clauses that require the consumer to submit disputes on a mortgage or home equity line of credit to binding arbitration. Originators also cannot finance any premiums or fees for credit insurance, such as credit life insurance, in connection with a consumer loan tied to a dwelling. The credit insurance can, however, be paid for on a monthly basis.

"Our new rules close loopholes to help ensure that loan originator compensation may not be based on the terms of the mortgage transaction," Cordray said. "At the same time, they spell out compensation practices that are legitimate and permissible."

There was one piece of good news for the industry, however, as the CFPB said it is delaying consideration of certain restrictions on up-front fees it was considering last year. …

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