[jholzknecht]

We had some great discussions taking place in the chat rooms during this week’s CMG meetings. I have recreated each discussion in case you missed the original. Each conversation is separated from the others by the line break.
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1) from Theresa Ballard: Appraisal Changes clarification – Streamline Refinance – So if the loan is being brokered by ABC small bank and the current lender is Wells Fargo, ABC small bank would have to broker that loan back to Wells Fargo in order to comply with Streamline rule. Is that correct? What if they wanted to broker the loan to Flagstar bank instead, would this kick them out of being able to do the streamline?

from Jack: The proposed Streamline Refinance exemption from the appraisal rules applies if the owner or guarantor of the refinance loan is the current owner or guarantor of the existing obligation. The proposed exemption allows a different creditor to extend the refinance loan, as long as the owner or guarantor remains the same on both the existing loan and the refinance. In your question if Wells Fargo is the current owner or guarantor thy would have to be the owner or guarantor of the refinance for it to qualify for the streamline refinance.
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2) from Cheryl Nakashige:
Would a commercial loan officer doing a business loan that is secured by a dwelling be covered under the compensation rules?

from Kelly Owsley:
I would say no because that type of loan wouldn’t be considered consumer credit.

from Jeff Copeland:
Agreed

from Robin Cooper:
I agree. This would not be consumer purpose.

from Laura:
But couldn’t the commercial lender be a LO depending on how they may refer a mortgage loan? And if so then they would fall under these compensation rules.

from Susan:
Good point. That could happen. But the question was specific to a business loan secured by a dwelling. This is Reg Z, so only the consumer purpose loans are covered.

from Jeff Copeland:
We have seen the occasion where we have made a commercial lender an LO because the consumer lender is out for a time.
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3) from Theresa Ballard: Are you going to be relating this to the Castle & Cook enforcement action?

from Jack: Although I did not specifically mention Castle & Cook, I did reference the case to make the point that the compensation rules are not hypothetical anymore, the rules are real and so is the liability.

from Theresa Ballard: Based on Castle & Cook, it’s going to be a High Risk.
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4) from Theresa Ballard: What about addressing the fact that the amount the MLO is to be paid cannot be higher or lower than the agreed upon amount. The Bank cannot take from the MLO the cost of a GFE cure. Correct?

from Jack: Correct, but not completely correct. This is a complicated issue. Check out the following from the Commentary.

Under § 1026.36(d)(1), a loan originator’s compensation may not be based on any of the terms of a credit transaction. Thus, a creditor and a loan originator may not agree to set the loan originator’s compensation at a certain level and then subsequently lower it in selective cases (such as where the consumer is able to obtain a lower rate from another creditor). When the creditor offers to extend credit with specified terms and conditions (such as the rate and points), the amount of the originator’s compensation for that transaction is not subject to change (increase or decrease) based on whether different credit terms are negotiated. For example, if the creditor agrees to lower the rate that was initially offered, the new offer may not be accompanied by a reduction in the loan originator’s compensation. Thus, while the creditor may change credit terms or pricing to match a competitor, to avoid triggering high-cost mortgage provisions, or for other reasons, the loan originator’s compensation on that transaction may not be changed for those reasons. A loan originator therefore may not agree to reduce its compensation or provide a credit to the consumer to pay a portion of the consumer’s closing costs, for example, to avoid high-cost mortgage provisions. A loan originator organization may not reduce its own compensation in a transaction where the loan originator organization receives compensation directly from the consumer, with or without a corresponding reduction in compensation paid to an individual loan originator.

Notwithstanding the previous comment § 1026.36(d)(1) does not prohibit a loan originator from decreasing its compensation to defray the cost, in whole or part, of an unforeseen increase in an actual settlement cost over an estimated settlement cost disclosed to the consumer pursuant to section 5(c) of RESPA or an unforeseen actual settlement cost not disclosed to the consumer pursuant to section 5(c) of RESPA. For purposes of comment 36(d)(1)-7, an increase in an actual settlement cost over an estimated settlement cost or a cost not disclosed is unforeseen if the increase occurs even though the estimate provided to the consumer is consistent with the best information reasonably available to the disclosing person at the time of the estimate. For example:
i. Assume that a consumer agrees to lock an interest rate with a creditor in connection
with the financing of a purchase-money transaction. A title issue with the property being
purchased delays closing by one week, which in turn causes the rate lock to expire. The
consumer desires to re-lock the interest rate. Provided that the title issue was unforeseen, the
loan originator may decrease the loan originator’s compensation to pay for all or part of the rate-lock extension fee.
ii. Assume that when applying the tolerance requirements under the regulations implementing RESPA sections 4 and 5(c), there is a tolerance violation of $70 that must be cured. Provided the violation was unforeseen, the rule is not violated if the individual loan originator’s compensation decreases to pay for all or part of the amount required to cure the tolerance violation.
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5) from Laura:
Beyond the compensation issue for an LO, isn’t there other requirements for training, background checks, etc for an LO?

from Kelly Owsley:
Those are the requirement for the MLO under the SAFE Act; these LO rules are a bit different.

from Robin Cooper:
Look at 12 CFR 1026.36(f).

from Laura:
I know they are different, but I thought I remembered there being some training aspects for LO’s beyond the SAFE Act requirements.

from Allyn Slauter:
Will you be covering the new LO qualification requirements that will be effective in January? We have a number of employees that will be LO’s who are not MLO’s, and we also need to make sure that our MLO’s also meet the new LO requirements after January 10.

from Jack: The Loan Originator Qualification rules are the subject of the next CMG meeting on August 22 and 23.
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6) from Cheryl Nakashige:
Our LOs are salaried only and take mortgage loans but also open deposit accounts. Do they need a compensation agreement in writing?
from Jack: A compensation agreement is required for all loan originators. A compensation agreement includes any agreement, whether oral, written, or based on a course of conduct that establishes a compensation arrangement between the parties (e.g., a brokerage agreement between a creditor and a mortgage broker, provisions of employment contracts between a creditor and an individual loan originator employee addressing payment of compensation). Where a compensation agreement is oral or based on a course of conduct and cannot itself be maintained, the records to be maintained are those, if any, evidencing the existence or terms of the oral or course of conduct compensation agreement.

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