Calls on Congress to End Regulation of Employee Loan Originator Compensation To Limit the Law’s Requirements to Compensation Between Entities
The Community Home Lenders of America (CHLA) today released its White Paper on Reform of LO Comp. The report chronicles the legislative history of LO Comp, identifies areas where it harms consumers – and calls on Congress to dial back the LO Comp statutory remedy to the practices it was designed to address – yield spread premiums between firms.
“LO Comp restrictions on compensation to a lender’s employee LOs harms consumers, is based on a flawed theory, ignores increased price shopping, sets a harmful precedent, and creates an unlevel playing field,” the CHLA White Paper concluded.
Many groups have called on the CFPB to address problems LO Comp has caused by creating exceptions to the uniform compensation requirement for areas like competitive loan situations and State bond loans.
In the White Paper, CHLA is calling on the CFPB to acr on these changes until Congress can act.
But CHLA goes beyond these proposals to strike at the heart of the problem – which is that Congress should have just addressed pre-2008 Yield Spread Premium practices – but instead went way beyond that to severely restrict compensation practices to a lender’s own employee loan originators – a somewhat unprecedented step.
The CHLA White paper explains how complex LO Comp rules are, cites how mortgage brokers flout its requirements, and names several areas where the overly broad LO Comp application harms consumers.
The report ends by proposing draft legislation to end restrictions on compensation paid to a lender’s own employee loan originators – leaving in place the prohibitions for compensation between different entities.
And the CHLA report identifies four interim actions the CFPB could take until Congress can act.