Inherited Regulations and Inherited Rulemaking Authorities. Docket No. CFPB-2018-0012

Ed Wallace Advocacy

THE Community Mortgage Lenders of America (“THE CMLA”) would like to thank the Bureau of Consumer Financial Protection (the “Bureau”) for allowing us and other institutions to comment on the Bureau’s Inherited Regulations and Inherited Rulemaking Authorities. THE CMLA would like to take this opportunity to comment on the Loan Officer Compensation Rule of 2013 (the “Rule”). Docket No. CFPB-2018-0012.

This particular request for information, posted on March 26, 2018, states that the Bureau is seeking feedback on aspects of inherited regulations that, inter alia, (i) create unintended consequences, (ii) overlap or conflict with other laws or regulations in a way that makes it difficult or particularly burdensome for institutions to comply, and (iii) federal consumer financial law is enforced consistently in order to promote fair competition.
Our members are of the view that the Rule should be updated to be consistent with market circumstances in 2018 and to allow for competition of smaller institutions against larger institutions. Such competition would directly benefit consumers.

First, since the Rule was implemented in 2013, other rules have come into effect which, when read with the Rule, create adverse consequences for consumers. Notably, with the advent of the TILA-RESPA Integrated Disclosure Rule or Know Before You Owe, consumers have been encouraged to “shop” by the Bureau. However, when a consumer receives a Loan Estimate from two lenders and “shops” the two against each other, a loan officer from either lender cannot reduce his or her compensation in order to win the deal. Imagine a scenario whereby loan officer A provides to the consumer a rate of 3.5% and loan officer B is willing to reduce his compensation so the consumer can receive a rate of 3.375% and loan officer B can “win” the deal. Under the Rule, this is currently not permissible and now has become an unintended consequence which is to the detriment of the consumer. We would ask the Bureau re-look at the Rule to update it, particularly in the context of other rules that have been enacted by the Bureau.

Second, the Rule creates further unintended consequences by not allowing lenders to pay differently by product type. The greatest impact to this is to housing finance agency programs. In adoption of the final version of the Rule, the Bureau concluded the following on pages 195-196 of the commentary adopting the Rule:

The Bureau believes that it is critical to continue restricting reductions in loan originator compensation to bear the cost of pricing concessions to truly unforeseen circumstances, because broader latitude would create substantial opportunities to evade the general rule. The Bureau believes this approach will balance the concerns of industry that the proposed commentary provision regarding permissible reductions in loan originator compensation to bear the cost of pricing concessions was too narrowly crafted, and thus ultimately would have hurt consumers and industry alike, with the concerns of consumer groups that any exception to the existing prohibition would vitiate the underlying rule.

The Bureau specifically cited housing finance agency programs earlier on the same page when making this determination.

A State housing finance authority urged the Bureau not to impose the ban on reducing loan originator compensation to bear the cost of pricing concessions for loans purchased or originated by governmental instrumentalities. The commenter stated that, under its programs, creditors agree to receive below-market servicing release premiums, and they then pass on some or all of that loss by paying loan originators less for such transactions. The commenter stated further that the proposal would have disruptive effects on its programs because creditors have indicated that they cannot afford to participate if, as they interpret §1026.36(d)(1)(i) as mandating, they must absorb all of the loss associated with the below-market servicing release premiums.

Housing finance agency programs have low margin commission structures which make such loans largely unprofitable for lenders. Origination companies cannot afford to pay the same amount for such programs as they would for conventional loans. The result is a decrease in volume of such loans and a net negative for the consumer.
Our membership would ask that the Bureau reconsider the Rule in light of these facts and developments, which have been ascertained subsequent to the original implementation of the Rule.

Thank you for your consideration.

Ed WallaceInherited Regulations and Inherited Rulemaking Authorities. Docket No. CFPB-2018-0012