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Getting Ready For January —Mortgage Loan Originator Compensation
Monday, December 9, 2013 6:55 AM

Continuing with our list of compliance updates, the Consumer Financial Protection Bureau (CFPB) has issued final rules on Mortgage Loan Originator (MLO) compensation.  Some of these rules were already part of Regulation Z, but were updated to reflect the language in the Dodd-Frank Act.  One portion of this rule change, the prohibition on mandatory arbitration provisions in certain residential mortgage contracts already took effect on June 1, 2013.

Two parts of the final rule do not change the current regulations already in effect, those being the prohibition on compensation based on the term of a transaction, and the prohibition against dual compensation for loan originators.  Under these rules, a loan originator cannot base compensation on “any of the transaction’s terms or conditions,” with a term of a transaction defined as “any right or obligation of the parties to a credit transaction.”  The dual compensation provision prohibits a mortgage loan originator from receiving compensation directly from a consumer if they have already received compensation from another person in connection with the same transaction.

The rule also sets out requirements for loan originator qualifications and identifiers.  Credit unions need to ensure that their employees involved in loan origination meet character, fitness, and criminal background standards similar to the SAFE act licensing standards, and provide adequate training to their loan originating employees consistent with their activities.  Loan originators must also provide their Nationwide Mortgage Licensing System and Registry (NMLSR) on loan documents.

Finally, the rule includes additional provisions on requiring creditors and mortgage brokers to retain loan originator compensation records for three years, and a prohibition on financing single premium credit insurance, originally set to take effect on June 1.

These rules take effect on January 10, 2014.

CUNA has given a summary of the final rule here, and the CFPB has released a summary here, and a Small-Entity compliance guide along with other resources here.

For any questions, please contact InfoCentral, at (512) 853-8515, or email