CFPB Issues Final Rule on Points and Fees Calculations and Loan Originator Activities

Tuesday, October 8, 2013 2:04:45 PM

On October 1 the CFPB issued a final rule to a previous supplemental proposed rule.  The amendments focused primarily on loss mitigation procedures under Regulation X’s servicing provisions, amounts counted as loan originator compensation to retailers of manufactured homes and their employees for purposes of applying points and fees thresholds under the Home Ownership and Equity Protection Act and the Ability-to-Repay rules in Regulation Z, exemptions available to creditors that operate predominantly in “rural or underserved” areas for various purposes under the mortgage regulations, application of the loan originator compensation rules to bank tellers and similar staff, and the prohibition on creditor-financed credit insurance. The Bureau also is adjusting the effective dates for certain provisions of the loan originator compensation rules. In addition, the Bureau is adopting technical and wording changes for clarification purposes to Regulations B, X, and Z.

The most important provisions from the 273 page final rule (see here for full rule text: http://files.consumerfinance.gov/f/201309_cfpb_titlexiv_updates.pdf) are the new provisions related to manufactured home retailers and their employees.  Recall in a previous rule the Bureau exempted from the points and fees calculations the compensation paid to retailers and their employees if their compensation was only based on the sales price of the home.  For the most part the Bureau stayed with this position, but did create a caveat to the rule in the event a creditor knows the sales price of the home includes compensation related to loan originator activities.  However, the creditor does not have an obligation to investigate the retailer's sales prices to determine if the sales price includes such compensation.

This final rule clarification is critical to our industry.  Without these provisions creditors would have no ability to know what activities were or were not done on a retail lot and therefore not be able to properly calculate points and fees.  These provisions resolve this issue.

Another important issue for our industry is what exactly can a retailer and its employees do in a sales transaction that doesn’t result in them tripping over a trigger to make them a mortgage loan originator (“MLO”)?  The Bureau addressed this issue as well in the most recent final rule.

Unfortunately, the Bureau did not provide our industry with a clear bright line test for exemption that the industry has been advocating for.  The industry lobby and comment letters previously asked the Bureau to exclude retailers and their employees from being considered MLO’s so long as they received the same compensation in a financed transaction as they would have in a cash transaction, regardless of what activities the retailer or employee might or might not have done.

The Bureau did not go this far in its final rule.  However, they did provide more specific guidance as to what would be and what would not be MLO activity triggers.

Permissible Non-MLO Activities:

  • Retailer employee may generally describe the credit application process to a consumer
  • Retailer employee may prepare residential mortgage loan packages
  • Retailer employee may compile and process application materials and supporting documentation
  • Retailer employee may provide general application instruction to consumers so consumers can complete an application
  • Retailer employee may collect information on behalf of the consumer, including gathering information or supporting documentation from third parties on behalf of the consumer to provide to the consumer, for the consumer then to provide in the application or for the consumer to submit to the loan originator or creditor
  • Retailer employee may provide or make available general information about creditors that may offer financing for manufactured homes in the consumer's general area
  • Retailer employee may provide general information about creditors or loan originators available, which includes making available, in a neutral manner, general brochures or information about the different creditors or loan originators that may offer financing to a consumer, but does not include recommending a particular creditor or loan originator or otherwise influencing the consumer's decision

While there are many activities that will trigger MLO classification, the general rule is that any taking, offering, assisting or negotiating specific credit terms (rates, terms, fees etc.) to a consumer based on the consumer’s individual financial characteristics (debts, income, assets or credit history) will trigger MLO classification.  Some of the more significant triggers in our industry that will result in a MLO classification are:

  • Retailer employee cannot fill out the credit application for the consumer
  • Retailer employee cannot refer a consumer to a specific loan originator or creditor
  • “Referring” includes any oral or written action directed to a consumer that can affirmatively influence the consumer to select a particular loan originator or creditor to obtain an extension of credit when the consumer will pay for such credit.”

Efforts are currently underway to provide a more detailed and comprehensive list of permissible and non-permissible non-MLO activities with examples and hypotheticals to provide to our membership to help them better navigate the new rules coming in 2014.

In the final rule the Bureau also limited the scope of applicability of the “clerical and administrative” exception, also referred to as the “teller exemption,” to only apply when a person is directly employed by a MLO.  This has been viewed by many as a significant change from what was thought to apply with the clerical and administrative exception applying also to contractors and agents.  The final rule makes clear that the exemptions are limited to only direct employment related persons.

The final rule states that if, and only if, a person is a direct employee of a MLO then that employee may do the following:

  • Provide the credit application of the MLO or Creditor the employee works for to a consumer, so long as in providing the application the employee does not assist the consumer in completing the application or otherwise influence his or her decision
  • Accept the completed application form of the MLO or Creditor they work for from the consumer
  • Deliver the credit application from a consumer to the MLO or Creditor they work for
  • Provide the contact information of the MLO or Creditor the employee works for

TMHA will continue to update members on the latest federal rule developments.