CORRECTION: New loan officer compensation rules take effect April 1

Fed says loan officer pay can't be based on loan terms

A Feb. 2 Inman News story, "Fed punts on real estate loan disclosures," incorrectly implied that the Federal Reserve Board was dropping planned changes to rules governing loan officer compensation.

The new rules, which stipulate that loan officer compensation cannot be based on a mortgage transaction’s terms, will take effect on April 1, as announced when the rule was finalized.

The Federal Reserve has issued guidance advising small businesses on compliance with Regulation Z: Loan Originator Compensation and Steering 12 CFR 226.

The Small Business Administration’s Office of Advocacy has expressed concerns that mortgage brokers may still have difficulty determining if they are in compliance with the rules.

Inman News columnist Jack Guttentag explored potential difficulties in interpreting the rules in a Feb. 16 column.

The Fed announced on Feb. 1 that it would not complete three pending rulemaking proceedings, which included changes to mortgage loan disclosures issued under the Truth in Lending Act, restrictions on certain advertising practices and sales practices for reverse mortgages, and changes to the disclosure obligations of loan servicers.

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The Fed had also proposed changing disclosures consumers receive to explain their right to rescind certain loans, and clarifying the responsibilities of the creditor if consumers exercised this rescission right.

With rulemaking authority for the Truth in Lending Act scheduled to be transferred to the Consumer Financial Protection Bureau in July, the Fed said it would leave those decisions to the CFPB.

Consumers currently receive two sets of federal loan disclosures, one under TILA and the other under the Real Estate Settlement Procedures Act (RESPA). Congress has mandated that the CFPB issue a proposal within 18 months to combine, in a single form, the mortgage disclosures required by TILA and RESPA.

Because the Fed’s proposals would "substantially revise the disclosures" for mortgages, "any new disclosures adopted by the board would be subject to the CFPB’s further revision in carrying out its mandate to combine the TILA and RESPA disclosures," the Fed said in announcing its decision.

The three rulemaking proceedings that were suspended were assigned docket numbers R-1366, R-1367 and R-1390.

The new loan officer compensation rules were developed as part of rulemaking proceeding R-1366 and finalized before the Feb. 1 announcement. Also finalized under R-1366 was a requirement that mortgage lenders provide borrowers with summary tables disclosing interest rate and payment changes.

None of the proposals put forward in rulemaking proceedings R-1367 and R-1390 had been finalized when the three rulemaking proceedings were suspended.


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