The CFPB has issued a proposal to implement Dodd-Frank Act restrictions on points and fees charged on most mortgages. The CFPB’s mortgage loan origination proposals released on August 17 would also impose qualification and compensation requirements for mortgage loan originators. Absent the CFPB rulemaking, the Dodd-Frank Act would prohibit payment of up-front points and fees on most mortgages even where a consumer prefers a loan with a lower interest rate and some up-front costs. The proposed rules would require lenders to offer consumers a loan option without discount points or origination points or fees, unless the consumers are unlikely to qualify for such a loan. The proposal would also require that any up-front payment, whether a point or a fee, must qualify as a bona fide point or fee. A point or fee would qualify as bona fide only if the consumer receives at least a certain minimum reduction of the interest rate in return for paying the point or fee. The proposed rule would also require that all loan originators, including but not limited to those employed by depository institutions, be subject to the same standards for character, fitness, and financial responsibility. The proposal would impose criminal background check and minimum training requirements for all loan originators. The proposed rules also prohibit the payment of steering incentives to mortgage loan originators and place restrictions on arbitration clauses and financing of credit insurance, as required by the Dodd-Frank Act. Comments on the proposed rules are due by October 16.

Nutter Notes: The loan originator qualification requirements would apply where a loan originator is not already required to be licensed under the Secure and Fair Enforcement for Mortgage Licensing Act (“SAFE Act”). The proposal would require the loan originator’s employer to ensure that the loan originator meets character, fitness, and criminal background check standards that are equivalent to SAFE Act requirements and receives training commensurate with the loan originator’s duties. Typically, loan originators employed by insured depository institutions are exempt from state loan originator licensing requirements (though they generally must register with the Nationwide Mortgage Licensing System and Registry). The proposed rules would also implement a Dodd-Frank Act provision that bans the practice of varying loan originator compensation based on interest rates or other loan terms and clarify certain issues related to that prohibition.The proposed rule treats different types of compensation structures differently based on an analysis of the potential steering incentives created by the particular structure. The proposed rule would permit employers to make contributions to qualified plans (such as defined benefit and contribution plans that satisfy IRS requirements), even if the contributions were made out of mortgage business profits. Additional requirements would apply to bonuses under non-qualified profit-sharing plans, profit pools, and bonus pools and employer contributions to non-qualified defined benefit and contribution plans.