The rules, which were effective April 1, 2011, restrict the methods available to compensate mortgage loan originators. The rules are confusing. Interpretations are lacking.
The rules were issued by the Federal Reserve Board, but then in July authority for Regulation Z transferred from the Federal Reserve to the Consumer Financial Protection Bureau (CFPB). The CFPB has not issued any interpretations for the regulations it inherited from the the agencies. But issues and questions persist, especially in the area of the compensation rules.
The two areas of greatest concern involve profit sharing plans and retirement accounts, such as a 401K that has an employer match feature. Informal guidance provided by the Federal Reserve Board in webinars in early 2011 was that either form of compensation was illegal for loan originators if the compensation was based in whole, or in part, on the rates and fees on loans. Those answers were not popular, so many sought a different answer.
All of the federal financial institution regulatory agencies have been slammed with questions about the compensation rules from their examiner’s and from the financial institutions they regulate. But the CFPB has interpretive authority, and they are not talking.
Last December the word on the street was that the FDIC, OCC and the FRB were meeting to hammer out some answers to the most pressing questions before year end. But apparently the meeting never occurred.
Recently the FDIC conducted a webinar that covered the compensation rules. The FDIC reaffirmed the guidance previously provided by the FRB. The answers are still not popular, so the effort to get a more favorable answer continues.
I can’t determine if this fight is being fought by valiant warriors or by a bunch of Don Quixotes. I suppose if you continue to ask the same questions, eventually the answers might change.