CFPB’s LO Compensation Measure Detrimental to Consumers

NAMB weighs in on latest CFPB-imposed industry regulation


JANUARY 23, 2013—The Consumer Financial Protection Bureau (CFPB) has released its final rules on loan originator (LO) compensation. The CFPB, after working for many months and examining the many aspects of this regulation which it inherited from the Federal Reserve Board, issued a rule that will harm consumers according to NAMB—The Association of Mortgage Professionals.


“This is the very opposite of the CFPB’s purpose,” said NAMB President Donald J. Frommeyer from Amtrust Mortgage Funding in Carmel, Ind. “This rule, together with the Qualified Mortgage (QM) rule that was recently released, will destroy competition by eliminating the ability of small business mortgage brokers to compete with larger creditor lenders. NAMB will continue to examine the CFPB’s 541 page regulation on loan originator compensation requirements under the Truth-in-Lending Act and make additional comments in the next few days.”


NAMB feels that if the CFPB’s intent is to take away a mortgage broker company’s ability to compete, then their LO compensation rule, along with the recently-released QM regulations, is the perfect way to eliminate smaller business operations from the marketplace.


“The CFPB has failed to realize that a mortgage broker company does not get all of the fees for arranging a loan,” said Frommeyer. “The mortgage broker company has office rent, utilities, employees, payments to their loan originators, copier expenses, computer expenses and other items of overhead to pay out of their commission received from the creditor, yet the creditor can simply increase their profits on the sale of the mortgage loan in the secondary market without any regard to the consumer. The limitations in this regulation along with the new rules on qualified mortgages, assures higher prices to consumers and less competition in the marketplace. This rule tugs at the heartstrings of small American businesses, as many of our shops are.”


NAMB has long represented the mortgage broker community, whether they are dues-paying members or non-members.


Mortgage broker companies have, for the last two years, operated with agreements for total compensation with all of their lenders. Most compensation ranges from 1.5 percent to three percent of the loan amount. Mortgage brokers are required to disclose a Steering Form giving the customers options for them to choose. Creditors have no agreement for this and are not required to complete the Steering Form.


“It seems that every part of these rules imposed by the CFPB are intended to make it increasingly difficult for the small business to operate,” said Frommeyer. “Most of the 10,579 broker companies in the nation have five or less employees. We operate in all of the small markets that the creditors do not want to go to or have offices in. Yet these are the companies that the CFPB seems to be singling out. They are deciding who the winners are and who the losers are. The mortgage broker shop is an integral part of America and to the homebuyers nationwide being who refinance and purchase homes each and every day.”


NAMB has vowed to continue to work with representatives from the House and Senate to examine these rules and the potential damage done to small businesses, the same small businesses that deliver consumers with competitive choices and competition in the mortgage marketplace.