In January 2013, the Consumer Financial Protection Bureau (CFPB) amended Regulation Z – Truth in Lending Act (TILA) to reflect loan originators compensation requirements mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act). The final rule was issued in January 2013, and one provision became effective on June 1, 2013. The remaining requirements became effective in January 2014.
The Loan Originator Rule (LOR) is about how compensation is paid to a loan originator in most closed-end mortgage transactions. The LOR:
- Prohibits a loan originator’s compensation from being based on the terms of the loan or a proxy for a loan term;
- Permits certain methods of compensating loan originators using bonuses, retirement plans, and other compensation plans that are based on mortgage-related profits; and,
- Prohibits loan originators in a transaction from being compensated by both the consumer and another person, such as a creditor.
Creditors were required to create and maintain policies and procedures detailing loan officer compensation plans and maintain loan officer compensation agreements to describe clearly how the loan officer compensation plan applies to the loan originator. Written policies and procedures to monitor compliance with the provisions on compensation, qualification, identification, and steering were required by June 1, 2013.
The LOR imposes requirements on loan originators to become and maintain certain qualifications. Loan originators must be licensed and registered as required by the Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (SAFE Act) or other applicable state or federal law. Loan originators who are not required to be licensed must be trained on the state and federal requirements that apply to their loan origination activities. The LOR changed background and character checks to be more consistent for different types of loan originators.
SAFE Act and Mortgage Loan Originators (MLO) – The SAFE Act provides guidance on licensing requirements under the
Nationwide Mortgage Licensing System and Registry (NMLSR). Regardless of changes in employment as an MLO; changes in personal information, such as address or name changes; disciplinary actions; and licensing renewals, MLO’s and the companies for which they work are required under the SAFE Act to maintain accurate records in the NMLSR, update registration information, and obtain and use the unique identifier (NMSLR ID) number assigned to the MLO from the NMSLR registration.