“New” Definition of Loan Originator Is Coming! Prepared? Realtors?
CURRENT REGULATION Z, requires mortgage broker companies that receive compensation from the consumer to pay the loan officers hourly or salaried BUT NOT ON COMMISSION. Thus, mortgage broker companies may not pay a commission to their employee mortgage brokers.
THE NEW RULE EFFECTIVE JANUARY 10, 2014 revises Regulation Z to permit commissions to be paid to loan originators on borrower paid compensation. However, you must wait until January 10, 2014 BEFORE you pay commissions on borrower paid compensation.
All of the provisions implemented by the new rule (12 CFR Part 1026) apply to closed-end consumer credit transactions secured by a dwelling. HOWEVER, the restrictions on mandatory arbitration clauses and financing of credit insurance premiums also apply to an open-end home equity line of credit (i.e., credit subject to § 1026.40) when secured by the consumer’s principal dwelling.
EFFECTIVE JANUARY 10, 2014 the DEFINITION OF A “LOAN ORIGINATOR” IS EXPANDED TO INCLUDE A PERSON WHO, IN EXPECTATION of direct or indirect compensation or other monetary gain or for direct or indirect compensation or other monetary gain, PERFORMS ANY OF THE FOLLOWING ACTIVITIES:
takes an application; offers, arranges, assists a consumer in obtaining or applying to obtain, negotiates, or otherwise obtains or makes an extension of consumer credit for another person; or through advertising or other means of communication represents to the public that such person can or will perform any of these activities.
The Rule expressly includes in the definition of a loan originator any person referring a consumer to any person who participates in the origination process as a loan originator. Referring includes any oral or written action directed to a consumer that can affirmatively influence the consumer to select a particular loan originator or creditor to obtain an extension of credit when the consumer will pay for such credit.
The exception is for persons who provide loan originator or creditor contact information to a consumer in response to the consumer’s request (as opposed to providing customer information to a loan originator or creditor). This definition is not only for purposes of determining who is subject to the restrictions on compensation, but also for the qualification requirements.
The definition of loan originator does not include bona fide third-party advisors such as accountants, attorneys, registered financial advisors, housing counselors, or others who do not receive compensation for engaging in loan origination activities.
The Rule exempts a person who does not take a consumer credit application or offer or negotiate credit terms available from a creditor, but who performs purely administrative or clerical tasks on behalf of a person who does engage in such activities. However, managers, administrative and clerical staff, and similar individuals who are employed by (or a contractor or an agent of) a creditor or loan originator organization and take an application, offer, arrange, assist a consumer in obtaining or applying to obtain, negotiate, or otherwise obtain or make a particular extension of credit for another person are loan originators. The Rule includes examples of activities that, in the absence of any other activities, will not render a manager, administrative or clerical staff member, or similar employee a loan originator for these purposes, including persons who:
• At the request of the consumer provides an application form to the consumer;
• Accept a completed application form from the consumer;
• Deliver an application to a loan originator or creditor without assisting the consumer in completing the application, processing or analyzing the information, or discussing specific credit terms or products available from a creditor with the consumer;
• Provide general explanations, information, or descriptions in response to consumer questions;
• As employees of a creditor or loan originator, provide loan originator or creditor contact information in response to the consumer’s request, provided that the employee does not discuss particular credit terms available from a creditor and does not refer the consumer, based on the employee’s assessment of the consumer’s financial characteristics, to a particular loan originator or creditor seeking to originate particular credit transactions to consumers with those financial characteristics;
• Describe other product-related services;
• Explain or describe the steps that a consumer would need to take to obtain an offer of credit, including providing general guidance on qualifications or criteria that would need to be met that is not specific to that consumer’s circumstances.
Again, The New Rule EFFECTIVE JANUARY 10, 2014:
• Allows mortgage brokerage companies receiving compensation from consumers to pay their employees commissions, as long as the commissions are not based on the terms of the loans that they originate;
• Permits loan originators to reduce their compensation to bear the cost of unforeseen pricing increases in a very narrow set of circumstances;
• Establishes steps to determine when a factor is a proxy for loan terms; and
• Permits compensation to loan originators that is based on profits within specified parameters. Source: Herman Thordsen