The Bureau is especially mindful, however, of the importance of affording consumers the benefits of the additional protections in this proposal as soon as practical and therefore seeks detailed comment, and supporting information, on the nature and length of implementation processes that this rulemaking will necessitate. These circumstances occur if the financial capacity of the small creditor affects both its cost of raising capital and its ability to hedge risk. Depending on the type of defined contribution plan, contributions may be made either by the sponsoring employer, the participating employee, or both. The term loan originator also includes employees of creditors and employees of mortgage brokers that originate loans (i.e., loan officers). Consumers with loan products with higher rates are more likely to refinance those loan products and thus a creditor that holds those loans in portfolio would have to use another approach to recover the costs to originate those loans. 74 FR 43232 (Aug. 26, 2009). Regulation Z (Truth in Lending); Screening and Training Requirements TILA and title X of the Dodd-Frank Act are Federal consumer financial laws. In some cases, amounts received for payment for third-party charges may exceed the actual charge because, for example, the originator cannot determine with accuracy what the actual charge will be before consummation. 114. The Bureau notes that the restrictions in TILA section 129B(c)(2) do not apply in transactions where a loan originator organization receives compensation directly from the consumer and the loan originator organization does not pay individual loan originators compensation (such as a commission) in connection with the transaction. The Bureau requests comment, however, on: (1) The circumstances, either currently or in the past, where creditors are unable to make available to consumers loans that do not include discount points and origination points or fees because the premiums received by the creditor on those loans are not sufficient to sell the loan into the secondary market, and (2) the characteristics of the types of loans and consumers affected in these circumstances. See current comment 36(d)(2)-1. The proposed comment clarifies that for purposes of the rule, profit-sharing plans include so-called bonus plans, bonus pools, or profit pools from which a person or the business unit, as applicable, pays individual loan originators employed by the person (as well as other employees, if it so elects) bonuses or other compensation with reference to the profitability of the person or business unit, as applicable (i.e., depending on the level within the company at which the profit-sharing plan is established). 1639b(c)(4)(D). The application includes consumer credit and income information, along with information about the home to be purchased. For the assumed 1,000 loan originators who are employees of bona-fide non-profit organizations, the Bureau estimates that no more than 10 percent have any such findings by a governmental jurisdiction to describe. The new qualification, document identification, and compliance procedure requirements also apply to creditors that finance transactions from their own resources. The comment clarifies that under this provision, whether the revenues of the person or business unit are used depends on the level within the person's organizational structure at which the profit-sharing plan is established and whose profitability is referenced for purposes of payment of the compensation. Section 1026.24(g) provides an alternative disclosure method for television and radio advertisements. New TILA section 129B(c)(2), which was added by section 1403 of the Dodd-Frank Act, restricts the ability of a creditor, the mortgage originator, or the affiliates of either to collect from the consumer upfront discount points, origination points, or fees in a transaction. 1. Assume that an individual loan originator's employment contract with a creditor guarantees a quarterly bonus in a specified amount conditioned upon the individual loan originator meeting certain performance benchmarks (e.g., volume of loans monthly). 5. The Bureau believes that having the 12-month period end on the date on which the decision is made will be simpler for compliance purposes because it would require the person to verify whether the individual loan originator is eligible for the compensation payment when making the decision, but not thereafter. If a factor does not substantially correlate with a term of a transaction originated by the loan originator, the factor is not a proxy for a transaction's terms. The Bureau acknowledges that terms of multiple individual loan originators' transactions taken in the aggregate will not, in every instance, have a substantial effect on profitability, and likewise there are occasions where the profitability will relate only insubstantially to the compensation. In view of the statutory changes to TILA, the provisions of current 1026.25, which require a two-year record retention period, do not reflect all applicable statutes of limitations for causes of action brought under TILA. Thus, depending on the premiums that are paid by the secondary market for each interest rate, the amount of reduction in the interest rate may be .125 of a percentage point for the first point paid, but may be .25 of a percentage point for the second point paid. A price of 98.75, for example, means that for every $100 in principal, the selling creditor receives only $98.75. Section 1026.36(d)(1)(ii) currently uses the phrase amount of credit extended instead of the phrase amount of the principal as set forth in TILA section 129B(c)(1). See Outline of Proposals at appendix A. As discussed above, in general revenues drive profitability and profitability relates to, if not drives, decisions about compensation for individual loan originators. This example illustrates how, if a factor that compensation is based on has little to no correlation to a transaction's term or terms, it is not a proxy for a transaction's terms. As noted, this proposal also contains certain qualification, registration, and licensing requirements. Yan Chang & Abdullah Yavas, Do Borrowers Make Rational Choices on Points and Refinancing?, 37 Real Estate Economics 635 (2009) (offering empirical evidence that consumers in their sample data remain in their current fixed-rate mortgages for too short a time to recover their initial investment in discount points). A broader interpretation that excludes servicers and their employees, agents, and contractors from those protections solely by virtue of their coincidental status as servicers is not the best reading of the statute as a whole and likely would frustrate rather than further congressional intent. After considering the volume of business produced by that originator, the creditor could decide that as of July 1, it will pay $3,250 for each loan delivered by that particular originator, regardless of the loan terms [ or conditions ]. Comment 36(d)(2)-2 (re-designated as proposed comment 36(d)(2)(i)-2.ii) would be revised to use the term rebates and credits, instead of yield spread premiums. Proposed 1026.36(d)(1)(iii)(A) prohibits payment of compensation to an individual loan originator that directly or indirectly is based on the terms of that individual loan originator's transaction or transactions. The Bureau invites public comment on whether loan originator organizations that do not have access to this information in the NMLSR should be permitted to satisfy the requirement by requiring the individual loan originator to provide it directly to the loan originator organization or if, instead, there are other means of obtaining the information that are more reliable or efficient. Accordingly, it is describing the rule text it is considering in detail and invites interested parties to provide comment. Mortgage Loan Originator Compensation Requirements from the - NCUA The proposed rule does not impose new reporting requirements. Nonetheless, the Bureau is concerned that by the time a consumer receives a quote from a particular creditor for a loan that does not include discount points and origination points or fees, the consumer may have already completed his or her shopping in comparing loans from different creditors. In addition, the loan originator organization must retain copies of the agreements with its individual loan originators governing their commissions and their annual bonuses and records of any specific commissions and bonuses.. The Bureau does not believe that depository institutions or bona fide non-profit organizations currently employ many individual loan originators who would be disqualified by the proposed provision, but the proposed provision would give consumers confidence that individual loan originators meet common minimum criminal background standards, regardless of the type of institution or organization for which they work. ii. The Bureau interprets the term replacing in TILA section 103(cc)(2)(G) not to include refinancings of consumer credit. Compliance by the small entities that will be affected by the proposed rule will require continued performance of the basic functions that they perform today. 1. The comment gives examples of the types of records that, depending on the facts and circumstances, may be sufficient to evidence compliance. The Bureau invites comments on whether there is a risk that, absent such a requirement, some creditors might manipulate their underwriting standards and whether the Bureau should adopt a rule against doing so. For example, such a safe harbor might provide that a depository institution is presumed to have met the requirement for procedures if it, its subsidiaries, and the employees of it and its subsidiaries do not engage in a pattern or practice of violating 1026.36(d), (e), (f), or (g). The requirement would not be triggered by charges that are passed on to independent third parties that are not affiliated with the creditor or mortgage broker. This proposed rule does not address those provisions. Later, the cost for the credit report is determined to be $15 for this consumer's transaction. In addition, currently, 1026.36(d)(2) prohibits a loan originator organization that receives compensation directly from a consumer in connection with a transaction from paying compensation in connection with that transaction to individual loan originators (such as its employee brokers), although the organization could pay compensation that is not tied to the transaction (such as salary or hourly wages) to individual loan originators. 2. To qualify under the safe harbor in 1026.36(e)(2), for each type of transaction in which the consumer has expressed an interest, the loan originator must present the consumer with loan options that meet the criteria in 1026.36(e)(3)(i). On November 15, 2019, the CFPB issued an interpretive rule clarifying screening and training requirements for financial institutions which employ loan originators with temporary authority. Because the Bureau is using its exemption authority with respect to the otherwise self-effectuating provisions regarding points and fees, the analysis measures the benefits, costs, and impacts of this provision of the proposed rule relative to the enactment of the statute alone, i.e., it uses a post-statute baseline. Moreover, the record retention provisions in 1026.25 currently are limited to creditors, whereas TILA section 129B(e), as added by the Dodd-Frank Act, covers all loan originators and not solely creditors. (iii) A loan originator organization is any loan originator, as defined in paragraph (a)(1)(i) of this section, that is not an individual loan originator. Under the Bureau's view, a servicer may modify an existing loan in several ways without being considered a loan originator. Proposed comment 36(a)-1.v tracks the criteria set forth in TILA section 103(cc)(2)(E). The loan originator organization must maintain records sufficient to evidence the compensation agreement that governs those receipts or payments, for three years after the date of the receipts or payments. 603, 604. Where an individual loan originator is not already required to be licensed under the SAFE Act, the proposal would require his or her employer to ensure that the individual loan originator meets character, fitness, and criminal background check standards that are equivalent to SAFE Act requirements and receives training commensurate with the individual loan originator's duties. Before publishing a report of its assessment, the Bureau is required to invite public comment on recommendations for modifying, expanding, or eliminating the newly adopted significant rule or order. Regulation Z, which implements the Truth in Lending Act (TILA), among other things, imposes certain requirements on: loan originator compensation; qualification of, and registration or licensing of, loan originators; compliance procedures for depository institutions; mandatory arbitration; and the financing of single premium credit insurance.

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