May 1, 2019
The Honorable Kathy Kraninger
Consumer Financial Protection Bureau
1700 G Street NW
Washington, DC 20552
Dear Director Kraninger,
The Community Mortgage Lenders of America, it’s members, and other industry participants are writing to urge the Consumer Financial Protection Bureau (CFPB) to make changes to its Loan Originator Compensation (LO Comp) Rule necessary to help consumers and reduce regulatory burden. As has been repeatedly stressed, the LO Comp Rule has placed a significant burden on midsize and small companies throughout the United States and their efforts to ensure all borrowers have equal access to not only the mortgage market, but specific programs and pricing designed for borrowers of all levels.
The original motivation for the LO Comp Rule was to protect consumers from steering. In the current regulatory environment, the harm associated with steering – borrowers agreeing to a loan they do not understand and cannot repay – is less likely than when the LO Comp Rule was first adopted due to the rule itself, as well as other regulatory actions adopted following the passage of the Dodd-Frank Act.
The Qualified Mortgage rule made repayment ability the principal consideration in credit decision-making, largely eliminating loan features and lending practices believed to be risky. More recently, the CFPB’s TILA-RESPA Integrated Disclosure Rule (TRID) attempted to make mortgage terms and costs easier to understand by heightening disclosure requirements. Together, these regulations reduce the risk of steering by shielding consumers from unsuitable mortgage loan products and ensuring they are aware of the costs of credit.
While these regulatory developments have reduced the risk of steering, the LO Comp Rule places strict limits on certain practices that would result in lower consumer costs or greater product availability, a rebalancing is needed.
Within each of the following, the intent is to benefit the consumer while also allowing organizations the ability to manage their cost structure internally. The LO Comp Rule requested changes which have previously been addressed are:
(1) Loan originators should be allowed to voluntarily lower their compensation in response to demonstrable competition in order to pass along the savings to the consumer. This change will
entitle the consumer to benefit through reduced fees/pricing while also allowing companies to remain competitive within the marketplace and thus providing the services and products for the benefit of the consumer. The change would only be used to positively impact the consumer.
(2) Loan originator’s compensation should be allowed to be reduced by the lender when the originator makes an error. The LO Comp Rule currently prevents companies from holding their employees financially accountable for losses that result from mistakes or intentional noncompliance with company policy when they make an error on a particular loan. As it stands, a loan originator who is responsible for an error may not bear the cost of that mistake. This result runs directly contrary to the central premise of the Dodd-Frank Act amendments to TILA that led to the LO Comp Rule — compensation is the most effective way to incentivize loan originator behavior.
(3) Lenders should be allowed to alter loan compensation in order to offer loans made under state and local housing finance agency (HFA) programs as well as those programs offered with lower margins due to specific arrangements between the lender and program sources such as portfolio lenders or independent investors. HFA programs are particularly important for first-time homebuyers and low- to moderate-income families who are often underserved and face affordability constraints under market interest rates and terms.
These programs provide participants with much-needed lower interest rates or access to down payment assistance, often along with housing counseling and financial education, encouraging responsible homeownership in a well-regulated manner.
HFA and some other loan programs are more expensive to produce and frequently cap lender compensation at levels below what a lender typically receives on a non-HFA/portfolio loan. Lenders would address this challenge by paying loan originators a smaller commission for loans with restrictions. HFAs report that some lenders have left their programs, and others have limited the volume of their participation which harms the consumers that need them most.
While we have recapped the requests that have been supplied numerous times, we also offer recommendations for immediate actions to assist in rectifying the situation.
The CFPB should immediately act on the items that currently have consensus: (1) Reduction in Loan Officer compensation for mistakes and (2) Adjustments to Loan Officer Compensation for HFA loan programs.
The CFPB could then request comment regarding the final item, voluntary reduction by loan officers due to competition. This would provide some immediate relief to midsize and small lenders and enable them to continue to compete with large banks and brokers, thus retaining the viability of their companies. This will also strengthen competition within the mortgage market allowing for consumers to be served within all communities as well as all income levels.
The Community Mortgage Lenders of America
1st Priority Mortgage, Inc.
A Power Team Lending
AKT American Capital, Inc
Allied Mortgage Group, Inc.
AMEC Home Loans
American Mortgage & Equity Consultants, Inc.
American Mortgage Service Co.
Atlanta Mortgage Lending, LLC
BankSouth Mortgage Company, LLC
Bison State Bank
Burt P. Augustensen Mortgages
Churchill Mortgage Corp.
Commerce Home Mortgage
Developer’s Mortgage Company
Equity Resources, Inc.
First American Bank & Trust
First American Mortgage
First Mortgage Solutions, LLC
Global Mortgage Link, LLC
Great Western Financial Services
Guardian Mortgage Inc
Homeowners Financial Group USA, LLC
Hometrust Mortgage Company
Howard Hanna Financial Services, Inc.
Howard Hanna Mortgage Services
HUNT Mortgage Corporation
Jersey Mortgage Company
Kaiser Financial Services
Kings Mortgage Services, Inc.
Lakeview Loan Servicing, LLC
Legacy Mutual Mortgage
Lenox Financial Mortgage Corp. dba WesLend Financial
LHM Mortgage DBA CNN Mortgage
Mission Mortgage of Texas, Inc.
Mortgages Unlimited Inc
Omni Lending LLC
Pephens & Co., Inc.
Platte Valley Bank
Right Start Mortgage, Inc.
RWM Home Loans
Scenic Oaks Funding
Silicon Valley Capital Funding
Southwest Funding LP
Staunton Financial, Inc. dba John Adams Mortgage
The Mortgage Company
The StoneHill Group, Inc.
Tidewater Home Funding
Town Square Mortgage
Trident Mortgage Company, LP
Trinity Oaks Mortgage
Tucker Mortgage, LLC
Victorian Finance, LLC
Western Ohio Mortgage
Whitman Met, Inc.
William Raveis Mortgage
Wilson & Muir Bank & Trust Company
Wintrust Mortgage, a division of Barrington Bank & Trust Company, N.A