The CFPB’s new mortgage loan originator compensation rules, released last week, prohibit originators from being paid more because the borrower’s mortgage has a higher interest rate, a prepayment penalty, or higher fees.
Because credit unions don’t typically pay for more profitable terms, the rule isn’t expected to have a major impact on the industry.
However, credit unions that sell mortgages to the secondary market should be aware that the new rule may prohibit them from paying more for loans that will be held on the books.
CUNA attorney Mary Dunn said during the trade group’s weekly press call Tuesday that the CFPB included specific examples in the final rule to demonstrate when the practice is prohibited, and said the example indicates most credit unions won’t be affected.
That example assumes lenders hold in portfolio only loans that have short terms, often with balloon payments. Mortgages with traditional 30-year, fixed terms, which typically have higher interest rates, are comparatively sold to the secondary market.
The CFPB concludes that because the rates vary, and the originator could potentially steer borrowers into the portfolio mortgage, holding a mortgage in portfolio “is a proxy for a term of a transaction.” Therefore, paying originators more for loans held in portfolio, when accompanied by different rates “over a significant number of transactions” is prohibited under the rule.
The new rule also requires that all loan originators, even those working at credit unions, meet the same character and fitness requirements, be screened for criminal backgrounds and undertake ongoing training about mortgage regulations.
That requirement, Dunn said, will result in a “significant” compliance burden for credit unions.
NAFCU President/CEO Fred Becker said despite the CFPB’s good intentions, the rule will “nevertheless add to the ever-increasing regulatory burden” on credit unions, which were not responsible for the financial crisis.