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Greetings!
We now enter the era when the
Dodd-Frank Act has become the law of the land.
Today's brief review (provided below) is at
the advent of this period and introduces some of the many changes
resulting from this landmark legislation.
But first a comment.
Consolidation of regulatory authorities will be
considerable!
There will be transfer and
consolidation of enforcement authorities into the Consumer
Financial Protection Bureau (Bureau) over the consumer financial
protection functions currently performed by the Federal Reserve's
Board of Governors, the Office of the Comptroller of the Currency
(OCC), the Office of Thrift Supervision (OTS), the Federal Deposit
Insurance Corporation (FDIC), the National Credit Union
Administration (NCUA) and the Federal Trade Commission (FTC) -
including exclusive authority over all related research,
rulemaking, guidance, supervision, examination and enforcement
activities.
At
least sixteen (16) existing consumer protection laws will be
included in the transfer, giving new exclusive rulemaking and
examination authority to the
Bureau.
I have published articles
extensively on this subject; indeed, forthcoming this month, I will
publish a 3-part series in the National Mortgage Professional
Magazine on the financial reform legislation and its impact on the
mortgage industry.
If you want to read more, go here, here, here, and here.
For the next few years, we will be seeing numerous announcements
implementing the changes required by the Dodd-Frank Act. These
issuances will come from various agencies as well as the new Bureau and will affect
revisions to existing regulations, enumerated laws, Bureau
mandates, and many other implementation requirements.
It is essential that you review and continually monitor for
these changes, because there will indeed be many and, in
various instances, the statutory requirements are complex,
extensive, and interlock or interact with other laws - and
violations can be enormously costly.
Because of the many regulatory
compliance areas that are affected, we urge you to approach the
required compliance proactively, seeking guidance now from a
competent residential mortgage compliance
professional.
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Overview
On August 16, 2010, the Federal
Reserve Board announced final rules to protect mortgage borrowers
from unfair, abusive, or deceptive lending practices that can arise
from loan originator compensation practices. The new rules apply to
mortgage brokers and the companies that employ them, as well as
mortgage loan officers employed by depository institutions and
other lenders. The Board is publishing these final rules, amending
Regulation Z, which implements the Truth in Lending Act (TILA) and
Home Ownership and Equity Protection Act (HOEPA).
At this time, lenders may pay loan originators more compensation if
the borrower accepts an interest rate higher than the rate required
by the lender (commonly referred to as a "yield spread premium").
Under the final rule, however,
a loan originator may not receive compensation that is based on the
interest rate or other loan terms. The ostensible purpose of
this regulation is to prevent loan originators from increasing
their own compensation by raising the consumers' loan costs (i.e.,
by increasing the interest rate or points).
However, loan originators can continue to receive compensation
that is based on a percentage of the loan amount.
There is also a prohibition
that prevents a loan originator that receives compensation directly
from the consumer from also receiving compensation from the lender
or another party. This new rule requires that consumers who
agree to pay the originator directly will not also pay the
originator indirectly through a higher interest rate, thereby
paying more in total compensation than they realize.
The final rule prohibits loan
originators from directing or "steering" a consumer to accept a
mortgage loan that is not in the consumer's interest in order to
increase the originator's compensation.
The final rules apply to closed-end transactions secured by a
dwelling where the creditor receives a loan application on or after
April 1, 2011.
Effective Compliance Date: April 1,
2011.
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Highlights
- Prohibits
payments to the loan originator that are based on the loan's
interest rate or other terms. Compensation that is based on a fixed
percentage of the loan amount is permitted.
- Prohibits
a mortgage broker or loan officer from receiving payments directly
from a consumer while also receiving compensation from the creditor
or another person.
- Prohibits
a mortgage broker or loan officer from "steering" a consumer to a
lender offering less favorable terms in order to increase the
broker's or loan officer's compensation.
- Provides
a safe harbor to facilitate compliance with the anti-steering
rule.
The safe harbor is
met if:
- The consumer is presented with loan offers for each type of
transaction in which the consumer expresses an interest (that is, a
fixed rate loan, adjustable rate loan, or a reverse mortgage);
and
- The loan options presented to the consumer include the
following:
- (A) the lowest interest rate for which the consumer
qualifies;
- (B) the lowest points and origination fees, and
- (C) the lowest rate for which the consumer qualifies for a loan
with no risky features, such as a prepayment penalty, negative
amortization, or a balloon payment in the first seven years.
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Visit
Library for Issuances
Truth in Lending, 12 CFR Part 226, Final rule and Official Staff
Commentary, FRB (8/16/10)
Highlights of Final Rules on Loan Originator Compensation and
Steering, FRB (8/16/10)
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This communication is sent to
our valued clients and colleagues, who regularly receive our Advisory
Bulletins, Mortgage
Compliance Updates, and
Compliance Alerts.
These publications are free to
subscribers. Information contained herein is not intended to be and
is not a source of legal advice.
� 2007-2010 Lenders Compliance Group, Inc. All Rights
Reserved.
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