by Jason Madiedo
The Consumer Finance Protection Bureau (CFPB) recently proposed further clarification on rules that govern the mortgage industry, including borrower loan cost options, loan officer compensation and other changes that will impact how lenders legally deal with borrowers and the cost to deliver a home mortgage.
The new proposed “ZERO-ZERO” Option requirement is designed to provide consumers with a no-cost, simpler way of shopping for a mortgage. On the plus side, borrowers can focus on the interest rate and the level of service they are receiving, which is ultimately a good thing. On the down side, however, all-inclusive mortgages will increase interest rates and borrowers will pay for those additional fees over a 30-year term versus a one-time charge. How will consumers benefit from this? Do the math; they won’t.
As for loan officer compensation, the proposed rule change clarifies the terms of compensation between the loan officer and a company. This is a good thing. There are other areas of compensation that remain unclear due to the many nuances of a commission-based industry. The new proposed changes help shrink the broadly interpreted areas between companies as it relates to compensation. One area companies have struggled with is the cost to cure issues. Previously a company had the ability to adjust a Loan Officers commission upon mutual agreement to curtail any unforeseen cost in favor of the borrower due to unforeseen changes that arise during transactions that ability was removed under the current rule. Under the proposed changes, this option would become available again, and effectively, allowing for more flexibility to help borrowers with unforeseen costs.
Other proposed options include new compensation structures and other forms of benefits like retirement accounts, stock options and performance bonuses. These are more long-term benefits although good it will not allow companies to reward its best performers on a more active basis such as quarterly or annually. While the proposal refers to other qualified plans that remain unnamed, the industry will watch this matter closely because it is integral to how lenders pay loan officers and how companies recruit and retain the best talent.
The final area of the CFPB’s proposal that may become a big issue for mortgage companies is the arbitration clauses. Arbitration is a commonly used method to keep costs down for all parties in a contract, should a disagreement arise. Arbitration is a mutually beneficial alternative to litigation. The CFPB’s proposal completely removes that option and will thereby increase the legal risk to lenders and inherently increase cost to consumers.
Commonsense reforms that make our business better and actually benefit consumers are key. But change just for the sake of change, threatens to create unintended consequences that will increase the cost of homeownership and do little to improve the mortgage process. Like many lending leaders, I will watch this conversation closely and cross my fingers that commonsense prevails.
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