Loan Originator (LO) Compensation. II. Purpose, Coverage and Overview; Loan Originator and Compensation Defined

Transcription

1 Loan Originator (LO) Compensation 1 II. Purpose, Coverage and Overview; Loan Originator and Compensation Defined

2 Major Components of Rule Prohibits steering a consumer into a loan that generates greater compensation for the loan originator, unless the consummated loan is in the consumer's interest. Prohibits loan originator compensation based on the terms of a mortgage transaction or a proxy for a transaction term. Prohibits dual compensation (i.e., loan originator being compensated by both the consumer and another person, such as a creditor). Prohibits mandatory arbitration clauses and waivers of certain causes of action. 2

3 Major Components of Rule Con t. Prohibits the financing of credit insurance (this prohibition does not include mortgage insurance). Requires depository institutions have written policies and procedures. Imposes qualification requirements on loan originators. Requires name and NMLSR identification information of loan originator with primary responsibility appear on the credit application, note, and security instrument. Permits, within limits, paying loan originators compensation based on profits derived from a bank s mortgage-related activities. ( bank includes an affiliate of the bank and/or a business unit within the bank or affiliate). 3

4 Key Compensation Prohibition No loan originator can receive and no person can pay to a loan originator, directly or indirectly Compensation in an amount that is based on terms of transactions (or proxies for terms of transactions): a single loan originator, or multiple loan originators (limited exception: some profitsbased compensation). 4

5 Covered Transactions A covered transaction is a consumerpurpose, closed-end transaction secured by a dwelling, whether by a first or subordinate lien. It includes reverse mortgages, condominiums, and cooperatives. 5

6 Loan originator Any person who, for or in expectation of compensation or other monetary gain, engages in certain specified activities, including: Taking an application; Offering particular credit terms, or referring a consumer to a particular loan originator; or Assisting a consumer in obtaining or applying for a covered mortgage loan by advising on specific credit terms. 6

7 Taking an Application A person takes an application by: 1. Filling out a consumer application; 2. Inputting the information into an online or other automated system; or 3. Taking information from the consumer over the phone to complete the application. 7

8 Offering Terms A person offers terms of a mortgage loan by: 1. Presenting particular credit terms for consideration by a consumer; or 2. Recommending or referring a consumer to a particular loan originator, creditor, credit terms, or credit product (based on information obtained from the consumer). 8

9 Assists a Consumer by A person assists a consumer with a residential mortgage loan by: 1. Advising on specific loan terms 2. Preparing loan packages, or 3. Collecting information on behalf of the consumer. 9

10 Who Are Not Loan Originators? 10 Categories of people generally not loan originators include: A person who, acting on behalf of a loan originator, engages in loan processing activities (for example, a processor, underwriter, or closer); A servicer or a servicer s employee (unless loan origination activities are performed in connection with a refinancing; renegotiating or modifying an existing mortgage is not a loan originator activity); and A person who performs purely administrative or clerical tasks on behalf of a loan originator or provides a mortgage application form to a consumer or returns the completed form to the creditor or originator.

11 Scenario #1 I m sorry, but I am not the person you need to talk with to Sure. Here is an application. I m actually Complete on my way it when to work you and have don t time have discuss interest Yes we rates do. As or you specifics can see, regarding we offer our home and bring it back at time mortgage I m shopping for a new home. Can several loans. That Hi, Can your right welcome Sarah types you sounds convenience. of tell now is to home our the me great. to Bank mortgage the meet home current After with you anyone. return Could it I will I mortgage specialist. give it to Sarah, and could If you have you tell me if this bank offers home loans time Thank of Anytown interest she get will right meet now you the rate an contact how I for needs can on application all can see your of you your I of help if our 30 directly she year and drop to discuss it off is available to your options. tomorrow? meet with mortgage loans? customers. you. you help. fixed today? home mortgage loan? 11

12 Scenario #2 I really appreciate all your help yesterday. I I m I am really No worked not I can t. sorry, looking on but Today my for our home someone is home my mortgage day mortgage to to qualify pick application up me. the I just kids last need night, Hi but welcome could not back. figure Are specialist some I am from help really daycare. is with not out of the the the I terminology person you really office need until out to on later get how the this application to complete process and need Ok, a couple to you let talk of here me the with look to sections. to drop complete at your off afternoon. some started guidance Is as there soon on any how as possible. chance to enter Is you my Could there a could information. anyone you stop help Please, I loan available application. your who home and could mortgage see what I back only me around have complete a 2:00? small this window application? answer of time a to couple figure of out my can financing questions? options. application? do. 12

13 Scenario #3 Good news, Two days after ago, analyzing I found your the application, perfect home credit I report, will Normally I be dropped and and able I made would employment to off tell my the never you mortgage sellers if do you history this an will application offer. but we be will I m approved over a week ago, but Last familiar be able night for with to I financing offer our and you bank s what still a 30-year I m haven t really heard sorry, from you haven t her. I need been to able know to today if I would found underwriting rate can t out we fixed wait my will loan offer standards be until able at tomorrow. I need to know if I was a to rate accepted. and offer pricing 4.25 you. I percent. However, really guidelines. I will not Again, I ll be grab qualify able connect Hi, have for how a with been loan are Sarah. you with approved doing your She bank, today? for is out financing the of How costs the by involved, the end of and my need I can t That your to to application provide is great discuss you news. my and with You financing supporting a preapproval just official made options preapproval documentation with letter, but off potential Sarah s office can today. today, I interest help Is you? but there rate. will anything be back tomorrow. you can do to help me? letter. I can have my Let Sarah, me Sarah desk Thank go your grab and type home you. your run that mortgage a file. up quick when analysis specialist. she returns for you. tomorrow. 13

14 Loan Originator Test Two part loan originator test: 1. Person engages in loan originator activity; and 2. Person performs activity for, or in expectation of, compensation. 14

15 Individual Loan Originator and Loan Originator Organization Individual Loan Originator: A natural person who meets the definition of a loan originator (by engaging in loan originator activity) Loan Originator Organization: Any loan originator who is not an individual loan originator (e.g., trusts, sole proprietorships, partnerships, corporations) For purposes of the rule s compensation provisions, banks become loan originator organizations when they broker loans or when they don t use their own resources to fund loans (commonly referred to as table funding ) For purposes of the rule s qualification and unique identifier provisions, banks are always loan originator organizations in all transactions 15

16 Compensation Compensation includes: Salaries Commissions Stocks Financial or similar incentives (e.g., bonuses or awards of trips or merchandise) Loan fees retained by the loan originator (regardless of fee label, e.g., processing fee ) Compensation does not include bona fide and reasonable charges passed onto a third party, or paid to a loan originator for services performed that are not loan origination activities (e.g., title insurance) 16