TopMortgage Compliance Update (1)
  June 14, 2010
                                                      FINANCIAL REFORM
                                         Restricts Loan Officer Compensation  


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In this issue, we have added a link to our Emails Archive

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Overview

On May 20, 2010, by a vote of 59-39 the Senate passed the so-called "Financial Reform Bill," otherwise known as Restoring American Financial Stability Act of 2010 - Amendment (S 3217) (Act). Nearly sixteen hundred pages long, it passed as an Amendment to the House's own version of over sixteen hundred pages (HR 4173), the Restoring American Financial Stability Act of 2010 (HR 4173).

On June 10, 2010, the Senate and House began reconciling their respective financial regulatory reform bills. Thus began the process of "reconciliation" between Senate and House versions to produce a final version that is supposed "to end 'too big to fail,' to protect the American taxpayer by ending bailouts, to protect consumers from abusive financial services practices, and for other purposes."

In a Summary published by the the House Financial Services Committee, as its House Resolution, a brief outline was provided which, among other things, confirms the adoption of restrictions on a mortgage originator's compensation through Yield Spread Premiums (YSP).

The reconciled version:
  • Clarifies that mortgage compensation can only be financed if all originator compensation is paid by the borrower (not third parties) and the borrower pays the entire fee by financing it; and,
  • Permits compensation through rate for all mortgages as long as they satisfy the "borrower pays fee" financing provision (previously the House bill only required this for "Qualified Mortgages").
Under the rubric of "anti-steering regulations," the YSP  would now be  restricted as compensation to the mortgage originator.

The restrictions on loan officer compensation are meant to reconcile the Senate and House versions of the Act and will presumably be in the final version to be signed by the President.

Highlights

Section 1073 (Page 1444 - HR 4173)
PROHIBITED PAYMENTS TO MORTGAGE ORIGINATORS


PROHIBITION ON STEERING INCENTIVES

(1) IN GENERAL: For any consumer credit transaction secured by real property or a dwelling, no loan originator shall receive from any person and no person shall pay to a loan originator, directly or in-directly, compensation that varies based on the terms of the loan (other than the amount of the principal).

(2) RESTRUCTURING OF FINANCING ORIGINATION FEE:

(A) IN GENERAL: For any consumer credit transaction secured by real property or a dwelling, a loan originator may not arrange for a consumer to finance through the rate any origination fee or cost except bona fide third party settlement charges not retained by the creditor or loan originator.

(B) EXCEPTION: Notwithstanding sub-paragraph (A), a loan originator may arrange for a consumer to finance through the rate an origination fee or cost if:

(i) the loan originator does not receive any other compensation, directly or indirectly, from the consumer except the compensation that is financed through the rate;

(ii) no person who knows or has reason to know of the consumer-paid compensation to the loan originator, other than consumer, pays any compensation to the loan originator, directly or indirectly, in connection with the transaction; and

(iii) the consumer does not make an upfront payment of discount points, origination points, or fees, however denominated (other than bona fide third party settlement charges).

(3) RULES OF CONSTRUCTION: No provision of this subsection shall be construed as:

(A) limiting or affecting the amount of compensation received by a creditor upon the sale of a consummated loan to a subsequent purchaser;

(B) restricting a consumer's ability to finance, at the option of the consumer, including through principal or rate, any origination fees or costs permitted under this subsection, or the loan originator's right to receive such fees or costs (including compensation) from any person, subject to paragraph (2)(B), so long as such fees or costs do not vary based on the terms of the loan (other than the amount of the principal) or the consumer's decision about whether to finance such fees or costs; or

(C) prohibiting incentive payments to a loan originator based on the number of loans originated within a specified period of time.
Visit our Library for Issuances
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 - Restoring American Financial Stability Act of 2010 (HR 4183)
 - Restoring American Financial Stability Act of 2010 - Amendment (S 3217)
 - HR 4183: Section 1073 - Prohibited Payments to Mortgage Originators

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