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The Consumer Financial Protection Bureau (CFPB) on Wednesday sent a list of rules under review to the Office of Management and Budget (OMB), including proposals that could affect mortgage lenders and servicers.
The list includes potential changes to loan originator (LO) compensation requirements and discretionary mortgage servicing rules under the Truth in Lending Act (Regulation Z; TILA), as well as servicing rules under the Real Estate Settlement Procedures Act (Regulation X; RESPA). Inside Mortgage Finance first reported on the topic.
The mortgage industry has urged the CFPB—now led by Acting Director Russell Vought—to modernize these rules but remains uncertain about what to expect from the process currently under OMB review, sources told HousingWire. No specific details have been made public yet. Representatives at the CFPB did not immediately respond to a request for clarification.
On the LO comp rule, the CFPB referred to a possible “rescission,” sparking confusion about whether the entire rule might be sunset.
Colgate Selden, a founding member of the CFPB and an attorney at SeldenLindeke LLP, said that “most agree that this rule could use some clarification,” since “when overhauling the original Federal Reserve Board version, we didn’t have time to address every possibility given the tight Dodd-Frank Act deadline.”
A key question is whether a proposed rescission by the CFPB would revert to the Federal Reserve‘s original rule or leave no rule in place. Such a move could significantly disrupt the industry. Selden pointed out that the Dodd-Frank Act loan originator compensation provisions, if adopted, could be interpreted to prohibit upfront points, fees and charges—including affiliate settlement service fees—on lender-paid mortgage transactions.
Also, mortgage brokers would not be able to charge differently for working with different lenders.
“Many more individuals and organizations could also become ‘mortgage loan originators’ subject to the Act,” Selden added. “Assuming there will be a notice-and-comment period as part of the rule rescission process, the CFPB should be fully informed of these and other possible outcomes.”
As for servicing rules, an industry executive said that while it’s unclear how significant the changes might be—given that the rulemaking is still in its pre-rule stage—“the industry sees value in the servicing rule, at least as a way to standardize the landscape.”
Isaac Boltansky, managing director and head of public policy at Pennymac, said both Regulation X and the LO comp rules “are in need of revisions and modernization, so this is an important conversation to have.”
“But our hope is that whatever we see from the Bureau gives stakeholders the time and forum necessary to make durable changes,” he added.
Earlier in May, the CFPB rescinded 67 guidance documents issued since 2011, including several that affect the mortgage industry. The withdrawal is not necessarily final. While the CFPB will continue to review them, they should not be enforced in the meantime.
Some of them helped clarify regulations, but others had little impact, sources told HousingWire. For example, the CFPB issued a bulletin on loan originator compensation in 2012 as it was transitioning oversight from the Federal Reserve to its jurisdiction. However, the bulletin became ineffective as soon as the CFPB’s version of the LO Comp Rule came into effect.
Vought believes the CFPB has, in many instances, “adopted interpretations that are inconsistent with the statutory text and imposed compliance burdens on regulated parties outside of the strictures of notice-and-comment rulemaking.”
James Kleimann contributed reporting.
