Compliance with the CFPB’s New Rules for Residential Mortgage Loan Originators

October 31, 2013

 

I. NMLSR ID Number on Application, Note and Deed of Trust/Mortgage

Beginning with residential mortgage loan applications received on January 10, 2014, the lender’s name and the lender’s unique ID under the Nationwide Mortgage Licensing System & Registry (NMLSR ID) together with the individual loan originator’s name and NMLSR ID must be included on the credit application, note or loan contract, and the security instrument (mortgage/deed of trust). The regulation does not specify where the information needs to be shown, so lenders should verify with their document providers that the information will be included somewhere in those documents.

A “Loan Originator” is both the organization and the individual who takes the residential mortgage loan application or offers, arranges or assists the consumer in obtaining the residential mortgage loan. A person who does not take the application or offer/negotiate credit terms with the consumer but who performs purely administrative or clerical tasks on behalf of the loan officer is not considered a Loan Originator subject to the CFPB regulation.

II. Compliance with SAFE Act Registration, Criminal Background Check, Credit Report, Verification of Loan Officer’s Financial Responsibility

– Credit Union’s residential mortgage loan originators must be registered under SAFE Act requirements and for each of their loan originators, the credit union must:

1. Obtain for any individual hired on or after January 10, 2014 (or for those hired before January 10, 2014 where there were no applicable statutory or regulatory background standards at the time of hire)

a. a criminal background check through the Nationwide Mortgage Licensing System and Registry (NMLSR);

b. a credit report from a consumer reporting agency

c. information from NMLSR about any administrative, civil, or criminal findings by any government jurisdiction

2. Verify that for any of the lender’s loan originators, there are no convictions involving fraud, dishonesty, a breach of trust, or money laundering.

3. Verify that the lender’s loan originators have demonstrated financial responsibility, character and general fitness.

III. Training

Provide periodic training covering Federal and State law requirements that apply to the loan originator’s job.

IV. Written Policies and Procedures

Lender must establish and maintain written policies and procedures designed to comply with the CFPB’s new regulation regarding Loan Originators.

V. Compensation

1. A residential mortgage loan originator may not receive (and no person may pay) compensation based on any term of the transaction (such as the interest rate, collateral type, prepayment penalty, origination points or fees).

2. These compensation regulations were designed to eliminate common incentives used by loan originators before the 2008 mortgage meltdown to steer borrowers into loans that were not in the borrower’s best interests.

3. Loan originators may be compensated based on a set percentage of the loan amount.

4. There are 7 “safe harbors” for compensation that may be paid to a loan originator:

1) The loan originator’s overall dollar volume (total dollar amount of credit extended or total number of transactions originated), delivered to the creditor.

2) The long-term performance of the originator’s loans.

3) An hourly pay rate based on the actual number of hours worked.

4) Loans made to new customers versus loans to existing customers.

5) A payment that is fixed in advance for every loan the originator arranges for the creditor (for example, $600 for every credit transaction arranged for the creditor, or $1,000 for the first 1,000 credit transactions arranged and $500 for each additional credit transaction arranged).
6) The percentage of the loan originator’s applications that close.

7) The quality of the loan originator’s loan files (for example, accuracy and completeness of the loan documentation) submitted to the creditor.

VI. The CFPB has issued an 80-page Small Entity Compliance Guide for the Loan Originator Rule which may be downloaded from the CFPB’s website, www.consumerfinance.gov

 

VII. Conclusion

Credit Unions should verify that their unique NMLSR ID and the loan officer’s unique NMLSR ID are included in the loan application, note and deed of trust. Thought the regulation does not specifically mention Modification Agreements, until the CFPB clarifies this regulation, it is prudent to include the lender’s and loan officer’s NMLDR ID on Loan Modification Agreements made after January 10, 2014.

Additionally, lenders should verify the criminal and credit background for loan originators hired after January 10 2014. If criminal background searches and credit reports were not done for loan originators hired before January 10, 2014, then lenders should do so for those employees also.

Lenders should review the CFPB’s Small Entity Compliance Guide for the Loan Originator Rule. The publication contains numerous Q&As with examples and compliance hints.

 

 

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Posted in Real Estate Law