As Private Gomer Pyle would say to Sargent Carter, “Surprise, surprise, surprise!”
It shouldn’t be a big surprise to mortgage lenders that one of the CFPB’s top priorities when performing audits in 2016 will be to carefully review and analyze all LO compensation plans (CFPB Audits).
This has been an ongoing concern of the CFPB. They want to ensure that lenders do not have any plans in place that may allow their LO’s some sort of random authority which could be a basis for discriminatory pricing practices.
As a reminder, your LO compensation plans may not be based on the terms of a transaction, or a proxy for a loan term. A “proxy’ would be considered as:
- A factor that consistently varies with a transaction term or terms over a significant number of transactions; and/or
- When the LO has the ability, directly or indirectly, to add, drop, or change the factor when originating the loan.
An example of a proxy for a loan term could exist when there is different compensation paid to the LO depending upon whether or not a loan would be placed in a product held by the lender in their portfolio. In such a situation, the LO may steer a consumer to such products, even though priced higher and/or not in the consumer’s best interest, to benefit from the higher commissions.
This may be old news but it is well worth revisiting. Many lenders have believed their LO comp plans to be in compliance only to learn after an audit, and fines and penalties, that they were not. Don’t learn the hard way. If you haven’t already done so, have your comp plans reviewed and approved by qualified counsel. Better to be safe than sorry.
As an FYI, other areas of 2016 CFPB audit interests, include, but may not be limited to:
- Compliance with the good old Ability to Repay rules (remember them?)
- The new TRID rules ( I thought they said they would give us some time)
- Marketing Services Agreements (if you have one, check with counsel to be sure it’s okay). This is another hot button for the CFPB. They have made it quite clear that they do not like them.
Happy New Year from your friends at CFPB! At least they are giving everyone fair warning on the areas of expected concentration.