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MBA files comment letter on LO compensation and qualifications.

On Oct. 17, the Mortgage Bankers Association (MBA) filed a comment letter with the Consumer Financial Protection Bureau (CFPB) expressing reservations and suggestions concerning a proposed rule on loan officer (LO) compensation and qualification requirements.

The CFPB's proposal stems from new requirements enacted as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

MBA noted that roughly 18 months ago, the Federal Reserve Board issued loan officer compensation rules that sought to implement similar--yet in some areas different--provisions of the Dodd-Frank requirements. The Fed's rules mandated a complete overhaul of compensation practices for mortgage originators. But MBA's letter states that "the implementation process was problematic, guidance was provided that seemed to extend far beyond the rules, and compliance was demanded in too short a period."

Also, in the interim period, new licensing and registration procedures for loan officers went into effect pursuant to the Secure and Fair Enforcement in Mortgage Licensing Act (SAFE Act).

MBA states in its comment letter to the CFPB on its proposed rule that "[N]ow that all this has been done, we think it is time to take stock of the [Fed's] rules and make changes where needed. It is also time to examine the consequences of the SAFE Act and establish more uniform qualifications for loan originators."

Some of MBA's letter addresses the Dodd-Frank Act restriction on points and fees and commission-based payments. The letter states: "MBA strongly believes an exemption is necessary from the provision of Dodd-Frank that can be read to prohibit the payment of transaction-specific commission to a loan originator by a creditor or a mortgage brokerage if the creditor or brokerage also receives points and fees from the borrower."

The letter states that MBA believes it is imperative that the exemption becomes effective prior to Jan. 21, 2013, to avoid the possibility that the law's provision will go into effect by operation of Dodd-Frank. MBA says that there is "ample legal basis for a finding supporting exemption under both Dodd-Frank and the Truth in Lending Act."

As for the CFPB's proposal that would require lenders to offer a "zero-zero" option or a no-points-and-no-fees loan, MBA raised additional concerns. The comment letter states: "While MBA supports an exemption from the provision of Dodd-Frank that can be read to restrict the payment of a transaction-specific commission to a loan originator by a creditor or a brokerage if the creditor or brokerage also receives points and fees from the borrower, it opposes the zero-zero exemption proposed."

The MBA letter notes, "Many lenders report difficulties in offering the zero-zero option. There are aspects of secondary market pricing and regulatory concerns that make it difficult to achieve."

MBA notes that the proposed zero-zero option "goes considerably beyond the purview of this rule, considering that the stated purpose of the zero-zero exemption is to help facilitate comparison-shopping for mortgage loans and help ensure consumers receive value for the payment of points and fees."


MBA wrote the CFPB that "the proper place to deal with issues of consumer shopping is the IReal Estate Settlement Procedures Act/Truth in Lending Act] rulemaking where this option and other options to facilitate consumer shopping can be appropriately examined and subjected to consumer testing."

In terms of the aspect of the CFPB's proposal dealing with originator qualifications, MBA states that it supports uniform national standards for bank and non-bank loan originators alike. The association notes in its comment letter that it is important that the standards be "established as clear, bright-line requirements." MBA urges the CFPB to work with the trade group and the industry on more explicit standards that achieve the desired objectives.

For example, the letter notes, "Accordingly, going forward, requirements such as 'periodic training covering federal and state law requirements,' will require greater explication and clarity. Otherwise, lenders will be exposed to unjustified litigation that ultimately will result in undue costs to consumers."

The MBA comment letter says, "MBA is considering proposals whereby all loan originators would be qualified by taking a uniform test administered by regulators responsible for chartering them as a further step toward uniform standards."

MBA indicates that it supports the CFPB proposal where it requires that originator entities must 1) ensure individual originators meet character, fitness and criminal background standards equivalent to the standards the SAFE Act applies to employees of nonbank loan originators; and 2) provide appropriate training to originators commensurate with their origination activities.

The comment letter notes, "[A]lthough MBA strongly supports uniform standards, we believe it is essential that they be established and applied in a manner to bank and non-bank employees alike that avoids duplication, undue burden and unnecessary costs."
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Title Annotation:Briefing Book
Comment:MBA files comment letter on LO compensation and qualifications.(Briefing Book)
Publication:Mortgage Banking
Date:Nov 1, 2012
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