CHLA Writes CFPB to Suggest Targeted Flexibility Changes to LO Comp Rules

Contact: Scott Olson                                For Immediate Release
571-527-2601                                            April 9, 2019
In a letter to the Consumer Financial Protection Bureau (CFPB), the Community Home Lenders Association (CHLA) has laid out detailed recommendations on how to provide targeted flexibility with respect to loan originator (LO) compensation rules in three circumstances which would benefit consumers and lenders, without opening up loopholes that would allow steering.
The three circumstances track those identified in a September 2018 industry letter, which are:
(1) When a Loan Originator Makes an Error
(2) Housing Finance Authority (HFA) loans, and
(3) Matching a Competitor’s Offer for a Borrower the LO Has Worked With the Borrower
“The Community Home Lenders Association (CHLA) is writing to offer recommendations on how to provide targeted flexibility on Loan Originator (LO) Compensation in an objective manner that would benefit consumers without opening up loopholes that would facilitate steering or other anti-competitive practices ,” the CHLA letter states.
The most important change would allow a mortgage loan originator (LO) to reduce their compensation in order to facilitate the lender matching a competing offer. The limited circumstances CHLA is proposing are when the LO had first provided a loan offer and spent some time assisting that borrower – then at the last minute the borrower obtains a better rate quote from a competitor as part of rate shopping, which the CFPB has encouraged. Currently an LO may not reduce compensation, which makes it harder to match such an offer, allowing the loan originator to make the loan and maintain the client relationship that the loan originator may have invested significant time and effort in.
Secondly, the CHLA letter also explains why lenders should be able to hold their loan originators financially accountable when the LO makes an error – but reducing their compensation “by the costs associated” with that error.
Finally, the CHLA letter explains that the LO Comp rule is discouraging the use of low down payment loans done by state Housing Finance Agencies (HFAs). As the HFA trade group, the National Council of State Housing Agencies (NCSHA), explained in a June 2019 letter, “The inability to reduce loan originator compensation . . . under the [LO Comp] rule harms consumers by reducing the availability of these vital programs.”
In all three circumstances, the CHLA letter explains how fixing this problem would help consumers and would not create financial incentives to steer borrowers to higher priced loans.

( 30 )