The CFPB has announced its intent to publish proposed guidelines that would level the playing field for all mortgage loan officers (LO), whether those loan officers work for a bank or a non-depository entity. The CFPB plans to publish its proposal this summer so that it can finalize the rule by January 2013. The rule is expected to address LO qualification and compensation requirements.
Currently the Secure and Fair Enforcement for Mortgage Licensing Act (SAFE Act) establishes different qualification standards for LOs that work for a non-depository entity (regulated by the states) and LOs that work for a bank (regulated by the federal government). The SAFE Act requires LOs that work for a non-depository institution to be licensed with the National Mortgage Licensing System (the NMLS) but only requires bank LOs to be registered with the NMLS. In order to be licensed, LOs must complete 20 hours of training, pass a national exam, and meet extensive credit and criminal background checks. The proposed rule, to be issued pursuant to the Dodd Frank Act, will deviate from the SAFE Act requirements. Under the expected proposal, the CFPB intends to extend the credit and criminal background checks to bank LOs, as well as require a certain level of training.
Banking groups have stated that bank LOs should not be required to undergo additional government training and testing because banks already provide extensive training to their employees due to the strict supervision of these entities by the federal government.
The CFPB is also expected to address LO anti-steering compensation requirements similar to those issued by the Federal Reserve Board in April, 2011. Under the Dodd-Frank Act, LOs may not be compensated by both sides of a loan agreement and may not be compensated based on certain loan terms that would promote steering borrowers to unfavorable loans. The Dodd-Frank Act provides the CFPB the authority to establish exemptions to LO compensation requirements. The CFPB is considering using this exemption authority to allow compensation to the LO to be paid by the creditor even when the borrower pays bona fide discount points that result in a reduction of the interest rate of the loan.
In addressing compensation rules, the Mortgage Bankers Association has stressed that the CFPB should limit its new rule to the requirements specified in the Dodd-Frank Act. Industry advocates have also expressed hope that the CFPB will use the rule to clarify industry confusion that has grown over the April 2011 Federal Reserve Board rule. The National Association of Mortgage Professionals has proposed that the CFPB also use its exemption power to exempt prime, traditional, and government loans to more narrowly tailor the anti-steering compensation rules to riskier loan types, which are believed more likely to be abusive to consumers.