Associations Call for Changes to Loan Originator Compensation Rule

In a letter to the Consumer Financial Protection Bureau on Wednesday, the American Bankers Association joined several financial and real estate trade organizations in calling for amendments to the loan originator compensation rule that would ensure greater consumer protection while reducing regulatory burden on lenders.

The associations pointed out that the rule “places strict limits on certain practices that actually would result in lower consumer costs or greater product availability,” and they noted that while well-intentioned, overly strict prohibitions and unclear definitions within the rule are causing problems for lenders and consumers. “These harms are felt when borrowers are unable to obtain lower interest rates from their lender of choice when shopping for a mortgage, or when lenders are unable to hold loan officers accountable for errors in the origination process,” the groups added.

The associations urged the bureau to permit loan originators to voluntarily lower their compensation in response to demonstrable competition in order to pass discounts to consumers; allow lenders to reduce compensation to originators when originators make mistakes; and allow compensation to differ under state and local housing finance agency programs.