Regulation Z's Mortgage Loan Originator Rules Review Pursuant to the Regulatory Flexibility Act, 16198-16205 [2023-05295]
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16198
Proposed Rules
Federal Register
Vol. 88, No. 51
Thursday, March 16, 2023
This section of the FEDERAL REGISTER
contains notices to the public of the proposed
issuance of rules and regulations. The
purpose of these notices is to give interested
persons an opportunity to participate in the
rule making prior to the adoption of the final
rules.
BUREAU OF CONSUMER FINANCIAL
PROTECTION
12 CFR Part 1026
[Docket No. CFPB–2023–0017]
Regulation Z’s Mortgage Loan
Originator Rules Review Pursuant to
the Regulatory Flexibility Act
Bureau of Consumer Financial
Protection.
ACTION: Notice of section 610 review
and request for public comment.
AGENCY:
The Consumer Financial
Protection Bureau (CFPB or Bureau) is
conducting a review of Regulation Z’s
Mortgage Loan Originator Rules (Loan
Originator Rules) pursuant to section
610 of the Regulatory Flexibility Act.
Regulation Z, which implements the
Truth in Lending Act (TILA), among
other things, imposes certain
requirements on: loan originator
compensation; qualification of, and
registration or licensing of, loan
originators; compliance procedures for
depository institutions; mandatory
arbitration; and the financing of single
premium credit insurance. As part of
this review, the Bureau is seeking
comment on the economic impact of the
Loan Originator Rules on small entities.
These comments may assist the Bureau
in determining whether the Loan
Originator Rules should be continued
without change or amended or
rescinded to minimize any significant
economic impact of the rules upon a
substantial number of such small
entities, consistent with the stated
objectives of applicable Federal statutes.
DATES: Comments must be received on
or before May 1, 2023.
ADDRESSES: You may submit comments,
identified by Docket No. CFPB–2023–
0017, by any of the following methods:
• Federal eRulemaking Portal:
https://www.regulations.gov. Follow the
instructions for submitting comments.
• Email: 2023-NoticeRFAReviewLoanOriginator@cfpb.gov.
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Include Docket No. CFPB–2023–0017 in
the subject line of the message.
• Mail/Hand Delivery/Courier:
Comment Intake—Loan Originator Rules
RFA Review, c/o Legal Division Docket
Manager, Consumer Financial
Protection Bureau, 1700 G Street NW,
Washington, DC 20552. Because paper
mail in the Washington, DC area and at
the Bureau is subject to delay,
commenters are encouraged to submit
comments electronically.
Instructions: The Bureau encourages
the early submission of comments. All
submissions must include the document
title and docket number. Please note the
number of the topic on which you are
commenting at the top of each response
(you do not need to address all topics).
In general, all comments received will
be posted without change to
www.regulations.gov.
All submissions in response to this
request for information, including
attachments and other supporting
materials, will become part of the public
record and subject to public disclosure.
Proprietary information or sensitive
personal information, such as account
numbers or Social Security numbers, or
names of other individuals, should not
be included. Submissions will not be
edited to remove any identifying or
contact information.
FOR FURTHER INFORMATION CONTACT: Ezer
Smith, Attorney-Advisor, or Lanique
Eubanks, Senior Counsel, Office of
Regulations, at 202–435–7700. If you
require this document in an alternative
electronic format, please contact CFPB_
Acccessibility@cfpb.gov.
SUPPLEMENTARY INFORMATION: The
Regulatory Flexibility Act (RFA) 1
requires each agency to consider the
effect on small entities for certain rules
it promulgates.2 Specifically, section
610 of the RFA provides that each
agency shall publish in the Federal
Register a plan for the periodic review
of the rules issued by the agency which
have or will have a significant economic
impact upon a substantial number of
small entities.3
1 Public
Law 96–354, 94 Stat. 1164 (1980).
terms ‘‘small entity’’ and ‘‘rule’’ are defined
in the RFA to include small businesses, small
governmental jurisdictions, and small
organizations. See 5 U.S.C. 601.
3 5 U.S.C. 610(a). The Bureau published its plan
for conducting reviews under section 610 of the
RFA in the Federal Register in 2019. See 84 FR
21732 (May 15, 2019).
2 The
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Section 610 provides that the purpose
of the review is to determine whether
such rules should be continued without
change, or should be amended or
rescinded, consistent with the stated
objectives of applicable statutes, to
minimize any significant economic
impact of the rules upon a substantial
number of such small entities.4 As set
forth in section 610, in each review,
agencies must consider several factors:
(1) The continued need for the rule;
(2) The nature of public complaints or
comments on the rule;
(3) The complexity of the rule;
(4) The extent to which the rule
overlaps, duplicates, or conflicts with
Federal, State, or other rules; and
(5) The time since the rule was
evaluated or the degree to which
technology, market conditions, or other
factors have changed the relevant
market.5
I. List of Rules for Review
This section lists and briefly describes
the rules that the Bureau plans to review
in 2023 under the criteria described by
section 610 of the RFA and pursuant to
the Bureau’s review plan.6
A. The Rules
On July 21, 2010, Congress enacted
the Dodd-Frank Wall Street Reform and
Consumer Protection Act (Dodd-Frank
Act),7 which amended the Truth in
Lending Act (TILA) 8 by, among other
things, expanding on previous efforts by
lawmakers and regulators to strengthen
loan originator qualification
requirements and regulate industry
compensation practices.9 Congress
enacted TILA based on findings that the
informed use of credit resulting from
consumers’ awareness of the cost of
credit would enhance economic
stability and would strengthen
competition among consumer credit
providers.10 One of the purposes of
TILA is to provide meaningful
disclosure of credit terms to enable
consumers to compare credit terms
available in the marketplace more
readily and avoid the uninformed use of
credit.11 TILA also contains procedural
45
U.S.C. 610(a).
U.S.C. 610(b).
6 84 FR 21732 (May 15, 2019).
7 Public Law 111–203, 124 Stat. 1376 (2010).
8 15 U.S.C. 1601 et seq.
9 See 15 U.S.C. 1639b; 12 U.S.C. 5103.
10 15 U.S.C. 1601(a).
11 Id.
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Federal Register / Vol. 88, No. 51 / Thursday, March 16, 2023 / Proposed Rules
and substantive protections for
consumers. Section 1403 of the DoddFrank Act created new TILA section
129B(c) for residential mortgage loans
which, among other things, imposed
restrictions on loan originator
compensation, strengthened loan
originator qualification requirements,
banned certain mandatory arbitration
clauses, and prohibited the financing of
single-premium credit insurance and
waivers of Federal consumer claims.12
From September 2010 to October
2013, the Board of Governors of the
Federal Reserve System (Board)
published two rules that were similar to
new TILA section 129B(c) and the
Bureau published three rules
implementing the TILA amendments.13
This document refers to these five rules
together as ‘‘Regulation Z’s Mortgage
Loan Originator Rules,’’ ‘‘the Loan
Originator Rules,’’ or ‘‘the Rules.’’
Regulation Z’s Mortgage Loan
Originator Rules, among other things,
prohibit compensating loan originators
based on a term of a mortgage
transaction or a proxy for a term of a
transaction,14 prohibit dual
compensation,15 prohibit steering
practices that do not benefit a
consumer,16 implement licensing and
qualification requirements for loan
originators,17 and prescribe rules for
recordkeeping and compliance.18 The
Rules are designed primarily to protect
consumers by reducing incentives for
loan originators to steer consumers into
loans with particular terms and by
ensuring that loan originators are
adequately qualified.
1. The Board’s 2010–2011 Rules
The Board published its first and
second rules to regulate certain
mortgage loan origination practices
(collectively, the Board’s Rules) on
September 24, 2010,19 and July 20,
2011.20 The Board explained that it
aimed to protect consumers from unfair
or abusive lending practices that can
arise from certain loan originator
compensation practices, while
preserving responsible lending and
sustainable home ownership.21 The
12 Dodd-Frank
Act section 1403, 124 Stat. 2139.
enactment of the Dodd-Frank Act, in the
preamble to the 2010 rule, the Board expressed its
intent to implement TILA section 129B(c) in a
future rulemaking after notice and opportunity for
further public comment. 75 FR 58509, 58509 (Sept.
24, 2010).
14 See 12 CFR 1026.36(d)(1).
15 See 12 CFR 1026.36(d)(2).
16 See 12 CFR 1026.36(e).
17 See 12 CFR 1026.36(f).
18 See 12 CFR 1026.25(c)(2).
19 75 FR 58509 (Sept. 24, 2010).
20 76 FR 43111 (July 20, 2011).
21 75 FR 58509, 58509 (Sept. 24, 2010).
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Board’s Rules amended Regulation Z to
include new restrictions on loan
originator compensation and practices
and record retention requirements that
were similar to many of the Dodd-Frank
Act’s TILA amendments. The Board’s
Rules primarily applied to closed-end
consumer credit transactions secured by
a dwelling.22 The Board’s Rules took
effect on April 6, 2011.23
Definition of Loan Originator. Under
the Board’s Rules, the term ‘‘loan
originator’’ was defined as a person who
for compensation or other monetary
gain, or in expectation of compensation
or other monetary gain, arranges,
negotiates, or otherwise obtains an
extension of consumer credit for another
person.24 The term ‘‘loan originator’’
includes an employee of the creditor if
the employee meets this definition.25
The term ‘‘loan originator’’ includes the
creditor only if the creditor does not
provide the funds for the transaction at
consummation out of the creditor’s own
resources, including drawing on a bona
fide warehouse line of credit, or out of
deposits held by the creditor.26 For
purposes of the Board’s Rules, a
mortgage broker with respect to a
particular transaction is any loan
originator that is not an employee of the
creditor.27 Therefore, the activities of a
‘‘loan originator’’ include both mortgage
broker entities as well as individual
mortgage loan officers.
22 Id. In comment 36–1, the Board’s Rules
explained the scope of coverage of a number of
provisions, such as prohibited payments to loan
originators under 12 CFR 226.36(d) and the
prohibition on steering 12 CFR 226.36(e) both
applying to closed-end consumer credit
transactions secured by a consumer’s principal
dwelling and secured by first or subordinate liens,
and reverse mortgages that are not home-equity
lines of credit subject to certain restrictions.
23 The Board initially set the compliance date for
the September 2010 Board Rule as April 1, 2011.
See 75 FR 58509 (Sept. 24, 2010). On March 31,
2011, the United States Court of Appeals for the
District of Columbia Circuit entered an
administrative stay of the September 2010 Board
Rule, see Per Curiam Order at 1, Nat‘l Assoc. of
Mortg. Brokers v. Fed. Rsrv. Sys., No. 11–5078 (D.C.
Cir. Mar. 31, 2011), which it then dissolved on
April 5, 2011. See Per Curiam Order at 1, Nat’l
Assoc. of Mortg. Brokers, No. 11–5078 (D.C. Cir.
Apr. 5, 2011). On July 10, 2011, the Board
published final revisions to the official staff
commentary to the September 2010 Board Rule. See
76 FR 43111 (July 20, 2011). These revisions, which
were effective as of July 20, 2011, updated the
compliance date for the September 2010 Board Rule
from April 1, 2011, to April 6, 2011, to reflect the
issuance and dissolution of the administrative stay.
24 75 FR 58509, 58533 through 58535 (Sept. 24,
2010) (codified at 12 CFR 226.36(a)(1) and comment
36(a)–1.i).
25 Id. at 58534, 58535 (codified at 12 CFR
226.36(a)(1) and comment 36(a)–1.i).
26 Id. (codified at 12 CFR 226.36(a)(1) and
comment 36(a)–1.i–ii, –3).
27 Id. (codified at 12 CFR 226.36(a)(2) and
comment 36(a)–2).
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Prohibited Payments to Loan
Originators: Compensation Based on
Transaction Terms or Conditions. The
Board’s Rules prohibited paying
compensation, directly or indirectly, to
a mortgage broker or any other loan
originator that was based on a mortgage
transaction’s terms or conditions, other
than the amount of credit extended.28
Prohibited Payments to Loan
Originators: Payments by Persons other
than the Consumer. The Board’s Rules
prohibited any person from paying
compensation to a loan originator for a
particular transaction if the consumer
pays the loan originator’s compensation
directly (dual compensation).29
Prohibition on Steering. The Board’s
Rules prohibited a loan originator from
steering a consumer to consummate a
loan that provides the loan originator
with greater compensation than other
transactions the loan originator offered
or could have offered to the consumer,
unless the loan is in the consumer’s
interest.30 The Board’s Rules also
included a safe harbor provision
providing that a loan originator could
satisfy the anti-steering provisions if it
presented a consumer with loan options
that met certain criteria.31
Record Retention: Prohibited
Payments to Loan Originators. The
Board’s Rules provided that for each
transaction subject to the provisions
concerning prohibited payments to loan
originators, a creditor must maintain
records of the compensation it provided
to the loan originator for the transaction
as well as the compensation agreement
in effect on the date the interest rate was
set for the transaction.32
2. The Bureau’s 2013 Rules
In 2013, the Bureau issued three rules
amending Regulation Z to implement
the Dodd-Frank Act’s amendments to
TILA regarding loan originator
compensation as well as the Dodd-Frank
Act’s provisions prohibiting certain
arbitration agreements and the financing
of certain credit insurance in connection
with a mortgage loan. The Bureau
issued its first rule on February 15,
2013,33 the second on May 31, 2013,34
and the third on October 1, 2013 35
28 75 FR 58509, 58534 through 58536 (Sept. 24,
2010) (codified at 12 CFR 226.36(d)(1) and
comment 36(d)(1)–1 to –9).
29 Id. at 58534, 58536, 58537 (codified at 12 CFR
226.36(d)(2) and comment 36(d)(2)–1 to –3).
30 Id. at 58534, 58537 (codified at 12 CFR
226.36(e)(1) and comment 36(e)(1)–1 to –3).
31 Id. (codified at 12 CFR 226.36(e)(2) and (3) and
comments 36(e)(1)–1 to –3 and 36(e)(2)–1 to –4).
32 Id. at 58534 (codified at comment 25(a)–5).
33 78 FR 11280 (Feb. 15, 2013).
34 78 FR 32547 (May 31, 2013).
35 78 FR 60382 (Oct. 1, 2013).
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Federal Register / Vol. 88, No. 51 / Thursday, March 16, 2023 / Proposed Rules
(collectively the Bureau’s Rules). The
Bureau explained in the preamble to the
first of the Bureau’s Rules that the
mortgage market crisis focused attention
on the critical role that loan officers and
mortgage brokers play in the loan
origination process, noting that
consumers rely heavily on loan officers
and mortgage brokers to guide them and
how, prior to the crisis, training and
qualification standards for loan
originators varied widely and
compensation was frequently structured
to give loan originators strong incentives
to steer consumers into more expensive
loans.36 The Bureau further explained
that the Dodd-Frank Act was expanding
on previous efforts by lawmakers and
regulators to strengthen loan originator
qualification requirements and regulate
industry compensation practices and
that the Bureau was issuing new rules
to implement the Dodd-Frank Act
requirements, as well as revising and
clarifying existing regulations and
commentary on loan originator
compensation.37
The Bureau’s Rules addressed the
following major topics:
Definition of Loan Originator. The
Bureau’s Rules expanded upon the
definition of a ‘‘loan originator’’ by
outlining a set of activities or services
that, if done for or in the expectation of
compensation or gain, makes the person
doing such activities or performing such
services a loan originator, unless
otherwise excluded. The term ‘‘loan
originator’’ means a person who, in
expectation of direct or indirect
compensation or other monetary gain or
for direct or indirect compensation or
other monetary gain, performs any of
the following activities: takes an
application; offers, arranges, assists a
consumer in obtaining or applying to
obtain, negotiates, or otherwise obtains
or makes an extension of consumer
credit for another person; or through
advertising or other means of
communication represents to the public
that such person can or will perform
any of these activities.38 The definition
of loan originator includes five specific
exclusions, including for persons who
‘‘perform[ ] purely administrative or
clerical tasks’’ on behalf of a loan
originator and who engage in certain
seller financing activities.39 The term
‘‘loan originator organization’’ is any
loan originator that is not an individual
36 78
FR 11280, 11280 (Feb. 15, 2013).
37 Id.
38 Id. at 11410, 11414, 11415 (codified at 12 CFR
1026.36(a)(1)(i) and comment 36(a)–1.i.A).
39 Id. at 11410, 11415, 11416 (codified at 12 CFR
1026.36(a)(1)(i)(A) through (E) and comments 36(a)–
1.ii–v; –4); 78 FR 60382, 60445 (Oct. 1, 2013)
(codified at comment 36(a)(1)(i)(B)–1).
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loan originator.40 Therefore, the term
‘‘loan originator’’ includes an employee,
agent, or contractor of the creditor or
loan originator organization if the
employee, agent, or contractor meets
this definition.41
Prohibited Payments to Loan
Originators: Payments Based on a Term
of a Transaction. The Bureau’s Rules
clarified and revised Regulation Z to
prevent evasion of the prohibition on
compensation based on a term of a
transaction adopted in the Board’s
Rules. For example, the Bureau’s Rules
expressly prohibited compensation
based in whole or in part on a factor that
is a ‘‘proxy’’ for a term of a
transaction.42 In addition, to prevent
incentives to upcharge consumers on
their loans, the Bureau’s Rules
prohibited loan originator compensation
based upon the profitability of a
transaction or a pool of transactions.43
However, the Bureau’s Rules permitted
certain bonuses and retirement and
profit-sharing plans to be based on the
terms of multiple loan originators’
transactions.44
Payments by Persons other than
Consumer: Dual Compensation. The
Bureau’s Rules added an exception to
the prohibition on dual compensation
40 78 FR 11280, 11410, 11415 (Feb. 15, 2013)
(codified at 12 CFR 1026.36(a)(1)(i) and comment
36(a)–1.i.D).
41 Id. at 11410, 11415 (codified at 12 CFR
1026.36(a)(1)(i) and comment 36(a)–1.i.B). In its
October 2013 Rule, the Bureau further clarified the
definition of loan originator to address: (1) when
employees of a creditor or loan originator in certain
administrative or clerical staff roles are not
considered ‘‘loan originators,’’ (and not also agents
and contractors, as initially written in the final rule)
and (2) when employees of manufactured housing
retailers may be classified as ‘‘loan originators.’’ 78
FR 60382, 60441–45 (Oct. 1, 2013) (codified at 12
CFR 1026.36(a)(1)(i) and comments 36(a)–1, –4, –5,
and 36(a)(1)(i)(B)–1).
42 78 FR 11280, 11411, 11418 through 11423 (Feb.
15, 2013) (codified at 12 CFR 1026.36(d)(1) and
comment 36(d)(1)–1 to –8, –10); 78 FR 60382, 60446
through 60449 (Oct. 1, 2013) (codified at comment
36(d)(1)–1, –3, –6). The Board’s rule previously
included commentary clarifying that a proxy for a
transaction term or condition would also violate the
rule, but the Board’s Rule did not define proxy and
provided only one example, and stakeholders
subsequently requested additional clarity from the
Bureau on proxies. See 78 FR 11280, 11323, 11324
(Feb. 15, 2013). The Bureau’s Rule included a
definition of proxy in the regulatory text and two
new commentary examples. Under the Bureau’s
Rules, a factor that is not itself a term of a
transaction is a proxy for a term of the transaction
if the factor consistently varies with that term over
a significant number of transactions, and the loan
originator has the ability, directly or indirectly, to
add, drop, or change the factor in originating the
transaction. Id. at 11411, 11419 (codified at 12 CFR
1026.36(d)(1)(i) and comment 36(d)(1)–2.ii).
43 78 FR 11280, 11411, 11418, 11419 (Feb. 15,
2013) (codified at 12 CFR 1026.36(d)(1)(i) and
comment 36(d)(1)–1 and –2).
44 Id. at 11411, 11419 through 11423 (codified at
12 CFR 1026.36(d)(iii) through (iv) and comment
36(d)(1)–3).
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included in the Board’s Rules that
allowed mortgage brokers to pay their
employees or contractors commissions
even if the consumer paid loan
originator compensation to the mortgage
broker, as long as the commissions are
not based on the terms of the loans that
they originate.45
Steering. The Bureau’s Rules made
only minimal changes to the Board’s
anti-steering provisions codified in 12
CFR 1026.36(e). The Bureau’s Rules
revised the Board’s steering provisions
to clarify that where two or more loans
available to be presented to a consumer
by a loan originator, for purposes of the
safe harbor, have the same total dollar
amount of discount points, origination
points, or origination fees, the loan
originator must present the loan with
the lowest interest rate that has the
lowest total dollar amount of discount
points, origination points, or origination
fees for which the loan originator has a
good faith belief that the consumer
likely qualifies.46 The Bureau’s Rules
also clarified, in the Official
Interpretations, that the loan with the
lowest interest rate for which the
consumer likely qualifies is the loan
with the lowest rate the consumer can
likely obtain, regardless of how many
discount points, origination points or
origination fees the consumer must pay
to obtain it.47
Loan Originator Qualification and
Identification Requirements. The
Bureau’s Rules implemented a DoddFrank Act provision that establishes
certain qualification requirements for
loan originators.48 The Bureau’s Rules
imposed duties on loan originator
organizations to ensure that their
individual loan originators are licensed
or registered as applicable under the
Secure and Fair Enforcement for
Mortgage Licensing Act of 2008 (SAFE
Act) 49 and other applicable law.50 The
Bureau’s Rules required that loan
originator employers whose employees
are not required to be licensed—
including employers that are depository
institutions and bona fide nonprofits—
45 Id. at 11412, 11423, 11424 (codified at 12 CFR
1026.36(d)(2)(i)(C) and comment 36(d)(2)(i)–1).
46 Id. at 11412, 11424 (codified at 12 CFR
1026.36(e)(3)(i)(C), read in conjunction with 12 CFR
1026.36(e)(3)(ii), and comment 36(e)(3)–3).
47 Id. at 11424 (codified at comment 36(e)(3)–3).
48 Id. at 11412, 11424 through 11426 (codified at
12 CFR 1026.36(f) and comments 36(f)–1 to –3,
36(f)(1)–1, 36(f)(2)–1, 36(f)(3)–1, 36(f)(3)(i)–1 to –2,
36(f)(3)(ii)–1 to –3, 36(f)(3)(ii)(B)–1 to –2, and
36(f)(3)(iii)–1); 78 FR 60382, 60441, 60442, 60449
(Oct. 1, 2013) (codified at 12 CFR 1026.36(f)(3)(i)
through (ii) and comments 36(f)(3)(i)–1, –2 and
36(f)(3)(ii)–1, to –2).
49 12 U.S.C. 5101 et seq.
50 78 FR 11280, 11412 (Feb. 15, 2013) (codified
at 12 CFR 1026.36(f)(1)–(2)).
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must ensure that their employees meet
certain character, fitness, and criminal
background standards and must provide
their employees with appropriate
training.51 The Bureau’s Rules also
implemented a Dodd-Frank Act
requirement that loan originators
provide their unique identifiers under
the Nationwide Mortgage Licensing
System and Registry (NMLSR) on loan
documents.52
Prohibition on Mandatory Arbitration
Clauses and Waivers of Certain
Consumer Rights. The Bureau’s Rules
implemented Dodd-Frank Act
restrictions on mandatory arbitration
clauses and waivers of Federal
consumer claims. The Bureau’s Rules
prohibited both (1) including clauses in
a contract or other agreement for a
consumer credit transaction secured by
a dwelling that require the consumer to
submit disputes arising out of that
agreement to binding arbitration; 53 and
(2) the application or interpretation of
provisions of such loans or related
agreements so as to bar a consumer from
bringing a claim in court in connection
with any alleged violation of Federal
law.54
Prohibition on Financing SinglePremium Credit Insurance. The
Bureau’s Rules prohibited financing any
premiums or fees for credit insurance
(such as credit life insurance) in
connection with a consumer credit
transaction secured by a dwelling (while
allowing credit insurance to be paid for
on a monthly basis).55 The Bureau
subsequently clarified what constitutes
financing of such premiums by a
creditor, when credit insurance
premiums are considered to be
calculated and paid on a monthly basis,
and when including the credit
insurance premium or fee in the amount
owed is prohibited.56
Other Provisions. The Bureau’s Rules
also extended existing recordkeeping
requirements concerning loan originator
compensation in two ways. First, they
required a creditor to maintain records
sufficient to evidence all compensation
it pays to a loan originator and the
compensation agreement that governs
51 Id. at 11412, 11413, 11426 (codified at 12 CFR
1026.36(f)(3) and comments 36(f)(3)(ii)(B)–1, –2,
36(f)(3)(iii)–1, –2).
52 Id. at 11413, 11426, 11427 (codified at 12 CFR
1026.36(g) and comments 36(g)–1 to –3, 36(g)(1)(ii)–
1).
53 Id. at 11413 (codified at 12 CFR 1026.36(h)(1)).
54 Id. (codified at 12 CFR 1026.36(h)(2)).
55 78 FR 11280, 11413 (Feb. 15, 2013) (codified
at 12 CFR 1026.36(i)); 78 FR 60382, 60442, 60449
(Oct. 1, 2013) (codified at 12 CFR 1026.36(i) and
comment 36(i)–1).
56 78 FR 60382, 60383 (Oct. 1, 2013) (codified at
12 CFR 1026.36(i)(2)(ii) and (iii) and comment
36(i)–1).
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those payments for three years after the
date of payment. Second, they required
a loan originator organization to
maintain records sufficient to evidence
all compensation it receives from a
creditor, a consumer, or another person;
all compensation it pays to any
individual loan originator; and the
compensation agreement that governs
each such receipt or payment, for three
years after the date of each such receipt
or payment.57 Pursuant to the DoddFrank Act, the Bureau’s Rules
implemented the requirement for
depository institutions, the subsidiaries
of such institutions, and the employees
of such institutions or subsidiaries to
establish and maintain procedures
reasonably designed to assure and
monitor compliance with the
compensation, steering, qualification,
and identification requirements.58 The
Bureau’s Rules also clarified that the
required procedures must be ‘‘written’’
to promote transparency, consistency,
and accountability.
The prohibition on mandatory
arbitration clauses and waivers of
Federal consumer claims took effect on
June 1, 2013.59 The remaining
provisions adopted by the Bureau’s
2013 Rules took effect on January 1,
2014,60 with the exception of the ban on
financing credit insurance, which took
effect on January 10, 2014.61
57 78
FR 11280, 11410, 11413, 11414 (Feb. 15,
2013) (codified at 12 CFR 1026.25(c)(2) and
comment 25(c)(2)–1 to –2).
58 Id. at 11413 (codified at 12 CFR 1026.36(j)); 78
FR 60382, 60442 (Oct. 1, 2013) (codified at 12 CFR
1026.36(j)(2)). This provision is similar to the
registration procedures pursuant to the Dodd-Frank
Act requirement added by TILA section 129B(b)(2)
and a final rule promulgated by the Federal
prudential regulatory agencies for banks, thrifts,
and credit unions requiring the institutions the
Federal prudential regulatory agencies regulate to
adopt and follow written policies and procedures
designed to assure compliance with the registration
requirements of the SAFE Act. This specific final
rule was inherited by the Bureau and designated as
Regulation G.
59 78 FR 11280, 11280 (Feb. 15, 2013).
60 78 FR 60382, 60383 (Oct. 1, 2013).
61 The February 2013 Bureau Rule initially set a
June 1, 2013, effective date for the provisions
containing the mandatory arbitration clause
prohibition and credit insurance financing
prohibition (amendments to 12 CFR 1026.36(h) and
(i)) and a January 10, 2014 effective date for all
other provisions. On May 31, 2013, the Bureau
issued a final rule delaying the effective date for the
credit insurance financing prohibition from June 1,
2013 to January 10, 2014. See 78 FR 32547, 32549,
32550 (May 31, 2013). The Bureau delayed the
effective date of these provisions to permit the
Bureau to clarify, before the provisions took effect,
their applicability to transactions other than those
in which a lump-sum premium is added to the loan
amount at closing. The Bureau’s October 2013 Rule
retained the January 10, 2014 effective date for the
credit insurance financing prohibition (12 CFR
1026.36(i)) but changed the effective date for the
amendments to 12 CFR 1026.36(a), (b), (d), (e), (f),
and (j) from January 10, 2014 to January 1, 2014.
78 FR 60382, 60383 (Oct. 1, 2013).
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No Prohibition on Consumer Payment
of Upfront Points and Fees. Section
1403 of the Dodd-Frank Act contains a
section that would generally have
prohibited consumers from paying
upfront points or fees on transactions in
which the loan originator compensation
is paid by a person other than the
consumer (either to the creditor’s own
employee or to a mortgage broker).
However, the Dodd-Frank Act also
authorizes the Bureau to waive or create
exemptions from the prohibition on
upfront points and fees. The Bureau
opted to include a complete exemption
to the prohibition on upfront points and
fees in the Bureau’s Rules, noting that
the Bureau needed to examine the
impact such a prohibition would have
on the mortgage market.62
B. The Market
The Bureau monitors the mortgage
origination market as part of its
oversight and enforcement of TILA and
Regulation Z, including the mortgage
origination rules that are the subject of
this review, as well as other aspects of
the regulation applicable to the market
and through oversight of the SAFE Act
and Real Estate Settlement Procedures
Act in Regulations G, H and X,
respectively.
1. Market Structure and Participants
The mortgage origination market is
one of the United States’ largest
consumer financial markets, with an
average estimated annual origination
volume of about 10 million 63 mortgages
62 78 FR 11280, 11281 (Feb. 15, 2013) (codified
at 12 CFR 1026.36(d)(2)(ii)).
63 See CFPB, Data Point: 2021 Mortgage Market
Activity and Trends (Sept. 19, 2022), https://
files.consumerfinance.gov/f/documents/cfpb_datapoint-mortgage-market-activity-trends_report_202209.pdf (HMDA Datapoint 2021); CFPB, Data Point:
2018 Mortgage Market Activity and Trends (Aug.
30, 2019), https://files.consumerfinance.gov/f/
documents/cfpb_2018-mortgage-market-activitytrends_report.pdf (HMDA Datapoint 2018); and
CFPB, Data Point: 2017 Mortgage Market Activity
and Trends (May 7, 2018), https://
files.consumerfinance.gov/f/documents/bcfp_
hmda_2017-mortgage-market-activity-trends_
report.pdf (HMDA Datapoint 2017). The Bureau
calculates average annual HMDA reportable
originations based on total annual originations for
2018 to 2021 from Table 1 in HMDA Datapoint 2021
and total annual originations for 2011 to 2017 from
Table 1A in HMDA Datapoint 2018. In HMDA
Datapoint 2018, the Bureau estimated that HMDA
reporters originated about 90 percent of all
originations in the U.S. (see page 11). The Bureau
calculates average annual total originations by
multiplying the average annual HMDA reportable
originations by 1.11. The Bureau notes that its 2015
HMDA final rule implemented several reporting
changes that took affected data collected starting in
2018. For example, the 2015 HMDA rule changed
reporting of open-end LOCs from optional to
mandatory. The Bureau does not adjust annual
HMDA reportable originations across time to
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for $2.2 trillion 64 over the past 10
years.65 The market had been growing in
recent years by most measures until a
sharp slowdown occurring in 2022 with
the rapid increase in mortgage rates.
Market volume is driven by interest
rates, credit availability, and demand for
housing. During periods of relatively
low interest rates, demand for mortgages
is generally strong because purchasing
power is strong (i.e., the monthly cost of
a mortgage relative to the loan balance
is low). When interest rates increase,
purchasing power is reduced and
therefore demand weakens. Conversely,
when interest rates decrease, purchasing
power is increased, driving increased
mortgage demand. Decreasing interest
rates also drive demand for refinances
independent from the demand for home
purchases. This can lead to large spikes
in mortgage origination demand after
large drops in interest rates, as was seen
in 2020 and 2021, with rapid reduction
in demand when interest rates increase,
as was seen in 2022.66 The availability
of credit also affects demand for
mortgages. As credit availability is
eased, the ability to obtain mortgage
financing is relaxed, enabling more
potential purchasers to access mortgage
credit, thereby increasing demand.
Conversely, a tightening in credit
availability will restrict access to
mortgage financing and therefore reduce
demand. These effects of credit
availability in the market were most
pronounced in the lead up to the Great
Recession of 2007–2009, where lax
credit underwriting standards led to
high demand for home purchases even
as interest rates began to rise.
account for this change when calculating average
annual originations.
64 See Fed. Rsrv. Bank of N.Y., Quarterly Report
on Household Debt and Credit Q3 2022 (Nov. 15,
2022), https://www.newyorkfed.org/medialibrary/
interactives/householdcredit/data/xls/hhd_c_
report_2022q3.xlsx. The Bureau calculates average
annual mortgage origination dollar volume by
summing total mortgage originations across quarters
for each year from 2011 to 2021 and taking the
average over those years (see page 6 data tab in
spreadsheet).
65 The Bureau notes that the Nationwide
Multistate Licensing System (NMLS) 2021 Annual
Mortgage Report implies a lower annual average
dollar volume of originations of $1.3 trillion
between 2012 and 2021. See NMLS, 2021 Annual
Mortgage Report, https://mortgage.nationwidelicens
ingsystem.org/about/Reports/
2021%20Annual%20Mortgage%20Report.xlsx.
66 See HMDA Datapoint 2021. The Bureau’s most
recent data point article found that the number of
closed-end originations (excluding reverse
mortgages) in 2021 slightly increased by 2.4 percent
from 2020. Whereas the number of originations
increased by 66.8 percent between 2019 to 2020
largely driven by the refinance boom that began in
2020. Most of the increase from 2020 to 2021 was
driven by an increase in the number of home
purchase loans while the volume of refinance
transactions continued to remain elevated.
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Subsequently, the crash in the value of
owned homes and the mortgage market
led to severe tightening of credit
standards and dampening demand for
home ownership even as interest rates
declined.
Participation in the market is diverse,
ranging from the largest banks to small
community banks, credit unions, and
non-depository lending institutions.
Participation by large banks has
declined over the past 10 years as large
non-depository creditors emerged as the
primary mortgage providers. In 2014, 11
of the top 25 creditors were depository
institutions, while in 2021 only six of
the top 25 were depository
institutions.67 In addition to the trend
toward mortgage lending by nondepository institutions, the market has
experienced consolidation with respect
to the participation of large creditors. In
2014, the top 25 creditors represented
34 percent of the market, while in 2021
the top 25 represented 44 percent.68
Most of the Rules apply to institutions
that engage in originating or extending
closed-end, consumer credit
transactions secured by a dwelling.69
Therefore, all small entities that
originate or extend closed-end
consumer credit transactions secured by
a dwelling, such as depository
institutions and non-depository
institutions, including mortgage brokers,
are likely subject to at least some
aspects of the Rules.
The Bureau estimates the number of
small depository institutions using
Federal Financial Institutions
Examination Council (FFIEC) and
National Credit Union Administration
(NCUA) Reports of Condition and
Income (call reports) data and estimates
the number of non-depository
institutions using the Economic Census.
In 2010, prior to the implementation of
the Board’s 2010 Rule, there were
15,146 depository institutions (i.e.,
banks, thrifts, and credit unions).70 Of
these institutions, 11,180 (74 percent)
originated mortgages and were subject
to the subsequent Regulation Z Loan
Originator Rules.71 According to the
67 See Neil Bhutta et al., Fed. Rsrv. Bd., The 2014
Home Mortgage Disclosure Act Data, 101 Fed. Res.
Bulletin at T.12 (Nov. 2015), https://
www.federalreserve.gov/pubs/bulletin/2015/pdf/
2014_HMDA.pdf (HMDA Bulletin 2014); HMDA
Datapoint 2021 at T.6A.
68 Id.
69 12 CFR 1026.36(b).
70 Calculated from FFIEC Call Report data, NCUA
Call Report data, and Thrift Financial Report data
for all quarters of 2010, accessed on January 6,
2023.
71 The Bureau classifies a bank or thrift as
originating any mortgages if the institution reported
a positive outstanding balance of closed-end loans
secured by 1–4 family residential properties on its
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current Small Business Administration
(SBA) threshold of $850 million or less
in total assets,72 14,152 (93 percent) of
depository institutions were small at the
end of 2010. Of these small depository
institutions, 10,216 (72 percent) were
subject to the Rules. The trend toward
depository institution consolidation
(which began prior to 2010) has reduced
the total number of depository
institutions, and the share of depository
institutions that originate mortgages has
increased slightly since 2010. As of the
end of 2021, 7,876 out of 9,887 (80
percent) depository institutions and
6,299 out of 8,278 (76 percent) small
depository institutions were subject to
the Rules.73
The Bureau relies on data from the
2007 and 2017 Economic Census to
estimate the number of non-depository
institutions, including mortgage brokers,
that employed loan originators prior to
the implementation of the Board’s 2010
Rule and the number of institutions
currently subject to the Regulation Z
Loan Originator Rules.74 In 2007,75
there were 20,625 mortgage brokers,
20,393 of which were small according to
the SBA’s current size standards.76 The
same year, there were 10,539 nondepository creditor institutions that
originated mortgages, 10,206 of which
were small.77 The Bureau assumes that
Call Report in any of the prior four quarters. The
Bureau classifies a credit union as originating
mortgages if the institution reported a positive total
number of real estate loans granted year-to-date in
the final quarter of the year.
72 13 CFR 121.201. Depository institutions have
North American Industry Classification System
(NAICS) codes of 522110 (Commercial Banking),
522130 (Credit Unions), and 522180 (Savings
Institutions and Other Depository Credit
Intermediation). All three industries have size
standards of $850 million as of December 19, 2022.
73 Calculated from FFIEC Call Report data and
NCUA Call Report data for all quarters of 2021,
accessed on January 9, 2023.
74 See U.S. Census Bureau, Stats. of U.S. Bus.
Data by Enter. Receipts Size 2017 (May 2021),
https://www.census.gov/data/tables/2017/econ/
susb/2017-susb-annual.html (SUSB 2017); U.S.
Census Bureau, Stats. of U.S. Bus. Data by Enter.
Receipts Size 2007 (2007), https://www.census.gov/
data/tables/2007/econ/susb/2007-susb-annual.html
(SUSB 2007).
75 The Bureau is aware that a substantial portion
of the changes from 2007 to 2017 may have
occurred prior to the 2010 Board Rule due to the
severe downturn in the mortgage market at that
time. The Economic Census is only conducted for
years that end in 2 and 7. The Bureau does not have
access to the necessary data to estimate the number
of small entities in 2010.
76 The NAICS code for Mortgage Brokers is
522310. As of December 19, 2022, the SBA size
standard threshold for Mortgage Brokers is $15
million in annual average receipts. The Bureau
calculates the number of firms and small firms
using the SUSB 2007.
77 The Bureau measures non-depository creditor
mortgage originators using NAICS 522292 (Real
Estate Credit). As of December 19, 2022, the SBA
size standard threshold for Real Estate Credit firms
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all these non-depository institutions are
subject to the Rules. The non-depository
mortgage industry has also experienced
substantial consolidation in the last 10
years. In 2017, the number of mortgage
brokers decreased by 67 percent to
6,809, of which 6,670 were small.78
Similarly, the number of non-depository
creditor institutions decreased by 68
percent to 3,289 in 2017, of which 2,904
were small.79
2. Mortgage Origination Process
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The primary mortgage origination
market, which encompasses the
interaction of the consumer with the
loan originator, can be generally divided
into two types of origination channels—
retail and wholesale. In a retail
transaction, the consumer deals with a
loan officer who is an individual loan
originator employed by the creditor,
such as a bank, credit union, or nondepository creditor. The creditor may
operate a network of branches or
communicate with consumers through
mail, the internet, or by phone. The
entire origination transaction is
conducted within the corporate
structure of the creditor, and the loan is
closed using funds supplied by the
creditor. Depending on the type of
creditor, the creditor may hold the loan
in portfolio or sell the loan to investors
on the secondary market, as discussed
further below.
In a wholesale transaction, the
consumer deals with an individual loan
originator that is a mortgage brokerage
firm or employed by such a mortgage
brokerage firm. In essence, the
wholesale origination channel consists
of creditors that utilize independent
third parties to perform the duties of a
loan originator, whereas the retail
channel consists of creditors that utilize
employees to perform such duties.
Because, in the context of a wholesale
transaction, the mortgage broker
operates as a third party, the mortgage
broker seeks offers from many different
creditors, and then act as a liaison
between the consumer and whichever
creditor ultimately closes the loan.
Generally, at closing, the loan is
consummated by using the creditor’s
funds, and the mortgage note is written
in the creditor’s name. The creditor may
is $47 million in annual average receipts. In the
SUSB 2007 and 2017, the Census provides counts
of firms by receipt size buckets that do not
correspond to all size standards. The Bureau
calculates the number of small Real Estate Credit
firms as the number of firms below $45 million in
receipts reported in the SUSB 2007 and SUSB 2017.
78 Calculated from SUSB 2007 and SUSB 2017.
See note 76, supra.
79 Calculated from SUSB 2007 and SUSB 2017.
See note 77, supra.
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hold the loan in portfolio or sell the
loan on the secondary market.
Both retail loan officers and mortgage
brokers provide information to
consumers about different types of loans
and advise consumers on choosing a
loan. Consumers may rely on loan
officers and mortgage brokers to
determine what kind of loan best suits
the consumer’s needs. Loan officers and
mortgage brokers also take a consumer’s
completed loan application for
submission to the creditor’s loan
underwriter. The application includes
the consumer’s credit and income
information, along with information
about the home to be used as collateral
for either a purchase or refinance.
Consumers can work with multiple loan
originators to compare the loan offers
that loan originators may obtain on their
behalf from creditors. The loan
originator or creditor may request
additional information or documents
from the consumer to support the
information in the application and
obtain an appraisal of the property.
After origination, the process for
underwriting and loan closing generally
occurs with the creditor. However, the
retail loan officer or mortgage broker
generally serves as the liaison for the
consumer throughout the process.
As stated, after a loan is closed, the
mortgage creditor who made the loan
either through the retail or wholesale
origination channel may keep the loan
in portfolio or sell the loan on the
secondary market. To accomplish this,
the creditor may sell the whole loan to
another mortgage lender or investor in
what is referred to as a correspondent
sale, or the creditor may place the loan
into a security to be sold on the
secondary market. A purchaser of a
correspondent sale loan may also place
the loan into a security to be sold. In the
current marketplace, a majority of loans
originated are ultimately placed into
Mortgage Backed Securities (MBSs) for
sale in the secondary market. When a
creditor sells a loan into the secondary
market, the creditor is exchanging an
asset (the loan) that produces regular
cash flows (principal and interest) for an
upfront cash payment from the buyer.80
The upfront cash payment represents
the buyer’s present valuation of the
3. Loan Originator Compensation
Structure
Loan originators are typically paid a
commission that is a percentage of the
loan amount. Prior to 2010, it was
common for the percentage to vary
based upon the interest rate of the loan
or other loan terms: commissions on
loans with higher interest rates, or with
terms such as prepayment penalties,
were higher than commission on loans
with lower interest rates or lack of
prepayment penalties (just as the
premiums paid by the secondary market
for loans vary with the interest rate or
other terms). This was typically called
a ‘‘yield spread premium.’’ 81 In the
wholesale context the mortgage broker
might keep the entire yield spread
premium as a commission, or they
might provide some of the yield spread
premium to the borrower as a credit
against closing costs.82
While this system was in place, it was
common for loan originator
commissions to mirror secondary
market pricing closely. The ‘‘price’’ that
the creditor offered to its mortgage
brokers or made available to its loan
officers was somewhat lower than the
price that the creditor expected to
receive from the secondary market—the
creditor kept the difference as corporate
revenue. However, the underlying
mechanics of the secondary market
flowed through to the loan originator’s
compensation. The higher the interest
rate on the loan or the more in upfront
charges the consumer paid to the
creditor (or both), the greater the
80 For simplicity, this discussion assumes that the
secondary market buyer is a person other than the
creditor, such as Fannie Mae, Freddie Mac, or
another institutional financial entity. In practice,
some creditors may securitize their own loans and
sell the securities directly. In this case, the
secondary market price is determined by the price
investors are willing to pay for the subsequent
securities. This scenario also does not consider
various risk mitigation techniques, such as risksharing counterparties, credit risk enhancements, or
security derivatives.
81 The term ‘‘yield spread premium’’ has been
used in different contexts in the mortgage industry.
Some use the term to mean solely a payment from
a creditor to a mortgage broker for a higher interest
rate, while others use the term to mean anytime a
mortgage is priced at a rate and term that would
generate a premium upon sale in the secondary
market.
82 Both retail loan officers and mortgage brokers
received compensation in this fashion. Some retail
loan officers may also have been paid salary,
bonuses, or a combination of all.
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loan’s future cash flows, using
assumptions about the rate of
prepayments due to property sales and
refinancings, the rate of expected
defaults, the rate of return relative to
other investments, and other factors.
Secondary market buyers assume
considerable risk in determining the
price they are willing to pay for a loan.
If, for example, loans prepay faster than
expected or default at higher rates than
expected, the investor will receive a
lower return than expected. Conversely,
if loans prepay more slowly than
expected, or default at lower rates than
expected, the investor will earn a higher
return over time than expected.
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compensation available to the loan
originator. This created a situation in
which the loan originator had a
financial incentive to steer consumers
into loans with higher interest rates or
less favorable terms or to impose on the
consumer additional upfront charges
payable to the creditor. In a perfectly
competitive and transparent market,
competition would ensure that this
incentive would be countered by the
need to compete with other loan
originators to offer attractive loan terms
to consumers. However, the mortgage
origination market is neither always
perfectly competitive nor always
transparent, and consumers (who take
out a mortgage only a few times in their
lives) may be uninformed about how
prices work and what terms they can
expect. While these rules and other
CFPB rules have improved transparency
and helped to foster shopping, survey
responses of mortgage borrowers
continue to show that a significant
portion of consumers who take out a
mortgage for home purchase fail to shop
prior to application; that is, they
seriously consider only a single creditor
or mortgage broker before choosing
where to apply.83 Moreover, prior to
2010, mortgage brokers were free to
charge consumers directly for additional
origination points or fees, which were
generally described to the consumer as
compensating for the time and expense
of working with the consumer to submit
the loan application. This compensation
structure was problematic for two
reasons. First, the loan originator had an
incentive to steer borrowers into less
favorable pricing terms. Second, the
consumer may have paid origination
fees to the loan originator believing that
the loan originator was working for the
borrower, without knowing that the loan
originator was receiving compensation
from the creditor as well.
In recent years, compensation
structures have changed to reduce, if not
eliminate, most problematic incentives.
This has been due to several factors: (1)
the restrictions on loan originator
compensation imposed under the
Board’s Rules, which took effect in
2010; (2) the enactment of TILA section
129B(c) through the Dodd-Frank Act,
which largely codified those restrictions
83 CFPB, Consumers’ Mortgage Shopping
Experience (Jan. 2015), https://
files.consumerfinance.gov/f/201501_cfpb_
consumers-mortgage-shopping-experience.pdf, and
Fannie Mae, One-Third of Recent Homebuyers Still
Don’t ‘Shop Around’ for Mortgages (Nov. 2015),
https://files.consumerfinance.gov/f/201501_cfpb_
consumers-mortgage-shopping-experience.pdf, and
Fannie Mae, One-Third of Recent Homebuyers Still
Don’t ‘Shop Around’ for Mortgages (Nov. 18, 2022),
https://www.fanniemae.com/research-and-insights/
perspectives/homebuyers-shop-around-mortgages.
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in 2010; and (3) amendments to
Regulation Z by the CFPB in 2013.
Today, loan originator compensation is
primarily determined as a percentage of
the loan amount being originated as
specifically permitted by TILA. Typical
compensation structures might also
include adjustments for the number of
originations in a certain time period.84
C. Bureau Resources and Analysis
Since issuing Regulation Z’s Mortgage
Loan Originator Rules, the Bureau has
published numerous reports and other
materials on the mortgage origination
market. In 2018, the Bureau issued its
first annual series of data point articles
describing mortgage market activity
based on data reported under the Home
Mortgage Disclosure Act (HMDA).85 The
annual data point article typically
covers mortgage applications and
originations, mortgage outcomes by
demographic groups and loan types,
monthly mortgage trends and activities,
and information on the lending
institutions that reported lending
activities under HMDA. The Bureau has
also released several articles concerning
the mortgage origination market. These
articles have covered various issues,
such as consumer finance in rural
Appalachia, first-time homebuyers,
types of changes that occur during the
mortgage origination process, profiles of
older adults living in mobile homes,
manufactured housing finance, and
Asian American and Pacific Islanders in
the Mortgage Market.86
84 Regulation Z’s Mortgage Loan Originator Rules
outline permissible methods of compensation as: (1)
loan originator’s overall dollar volume (i.e., total
dollar amount of credit extended or total number
of transactions originated), delivered to the creditor;
(2) long-term performance of the originator’s loans;
(3) an hourly rate of pay to compensate the
originator for the actual number of hours worked;
(4) whether the consumer is an existing customer
of the creditor or a new customer; (5) a payment
that is fixed in advance for every loan the originator
arranges for the creditor; (6) the percentage of
applications submitted by the loan originator to the
creditor that results in consummated transactions;
and (7) the quality of the loan originator’s loan files
(e.g., accuracy and completeness of the loan
documentation) submitted to the creditor. Comment
36(d)(1)–2.i.
85 CFPB, Data Point: 2017 Mortgage Market
Activity and Trends (May 7, 2018), https://
files.consumerfinance.gov/f/documents/bcfp_
hmda_2017-mortgage-market-activity-trends_
report.pdf. HMDA data are used to assist in
determining whether financial institutions are
serving the housing credit needs of their local
communities; facilitate public entities’ distribution
of funds to local communities to attract private
investment; and help identify possible
discriminatory lending patterns and enforce
antidiscrimination statutes.
86 CFPB, Consumer Finances in Rural
Appalachia: Data Point (Sept. 2022), https://
files.consumerfinance.gov/f/documents/cfpb_
consumer-finances-in-rural-appalachia_report_
2022-09.pdf; CFPB, Market Snapshot: First-time
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Through its supervisory and
enforcement programs, the Bureau
performs examinations of large banks
and certain nonbanks for compliance
with Federal consumer financial laws
and entered into consent orders where
noncompliance is observed. Since 2015,
the Bureau has, through its publication
of Supervisory Highlights on its
supervisory program and certain
litigation-related documents on its
enforcement actions, reported
noncompliance with aspects of
Regulation Z’s Mortgage Loan Originator
Rules involving: (1) compensation based
on a term of a transaction 87 where: (a)
loan originators received compensation
based, in part, on the interest rates of
the loans they closed; 88 and (b) loan
originators were paid differently based
on product type where the product type
contained different terms; 89 (2) failure
of a depository institution to establish
Homebuyers (Mar. 2020), https://
files.consumerfinance.gov/f/documents/cfpb_
market-snapshot-first-time-homebuyers_report.pdf;
CFPB, How Mortgages Change Before Origination
(Oct. 2020), https://files.consumerfinance.gov/f/
documents/cfpb_data-point_how-mortgageschange-before-origination.pdf; CFPB, Data
Spotlight: Profiles of Older Adults Living in Mobile
Homes (May 2022), https://
www.consumerfinance.gov/consumer-tools/
educator-tools/resources-for-older-adults/dataspotlight-profiles-of-older-adults-living-in-mobilehomes/; CFPB, Manufactured Housing Finance:
New Insights from the Home Mortgage Disclosure
Act Data (May 2021), https://
files.consumerfinance.gov/f/documents/cfpb_
manufactured-housing-finance-new-insights-hmda_
report_2021-05.pdf; CFPB, Data Point: Asian
American and Pacific Islanders in the Mortgage
Market: Using the 2020 HMDA Data (July 2021),
https://files.consumerfinance.gov/f/documents/
cfpb_aapi-mortgage-market_report_2021-07.pdf.
87 12 CFR 1026.36(d)(1)(i).
88 Press Release, CFPB, CFPB Takes Action
Against Castle & Cooke For Steering Consumers
Into Costlier Mortgages (Nov. 7, 2013), https://
www.consumerfinance.gov/about-us/newsroom/
cfpb-takes-action-against-castle-cooke-for-steeringconsumers-into-costlier-mortgages/; Press Release,
CFPB, CFPB Takes Action Against Franklin Loan
Corporation for Steering Consumers into Costlier
Mortgages (Nov. 3, 2014), https://
www.consumerfinance.gov/about-us/newsroom/
cfpb-takes-action-against-franklin-loan-corporationfor-steering-consumers-into-costlier-mortgages/;
Press Release, CFPB, CFPB Orders RPM Mortgage to
Pay $19 Million for Steering Consumers Into
Costlier Mortgages (June 5, 2015), https://
www.consumerfinance.gov/about-us/newsroom/
cfpb-orders-rpm-mortgage-to-pay-19-million-forsteering-consumers-into-costlier-mortgages/; Press
Release, CFPB, CFPB Takes Action Against
Guarantee Mortgage For Loan Originator
Compensation Violations (June 5, 2015), https://
www.consumerfinance.gov/about-us/newsroom/
cfpb-takes-action-against-guarantee-mortgage-forloan-originator-compensation-violations/.
89 CFPB, Supervisory Highlights, Issue 24,
Summer 2021 (June 2021), https://
files.consumerfinance.gov/f/documents/cfpb_
supervisory-highlights_issue-24_2021-06.pdf; CFPB,
Supervisory Highlights, Issue 26, Spring 2022 (May
2022), https://files.consumerfinance.gov/f/
documents/cfpb_supervisory-highlights_issue-26_
2022-04.pdf.
E:\FR\FM\16MRP1.SGM
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Federal Register / Vol. 88, No. 51 / Thursday, March 16, 2023 / Proposed Rules
and maintain required written policies
and procedures reasonably designed to
monitor compliance with the
requirements concerning prohibited
payments to loan originators and the
prohibitions on steering, qualification,
and identification; 90 and (3) failure of a
loan originator organization to ensure
employees engaged in loan originator
activities are properly licensed and
registered in accordance with applicable
State and Federal requirements.91
ddrumheller on DSK120RN23PROD with PROPOSALS1
D. Previous Input to the Bureau
The Bureau has received feedback on
Regulation Z’s Mortgage Loan Originator
Rules through a variety of forums since
the Rules were adopted. For example, in
2018, the Bureau published a Request
for Information (RFI) on whether,
consistent with its statutory authority to
prescribe rules pursuant to the Federal
consumer financial laws, the Bureau
should amend the regulations or
exercise the rulemaking authorities that
it inherited from certain other Federal
agencies.92 Approximately 29 of the
comments submitted in response to the
RFI addressed Regulation Z’s Mortgage
Loan Originator Rules. Commenters
included trade, consumer advocacy,
industry, and other groups. The Bureau
has also received a rulemaking petition
seeking certain revisions to the Rules
and other Bureau regulations related to
mortgage origination practices.93
From these and other sources,
stakeholders have provided feedback to
the Bureau on many aspects of
Regulation Z’s Mortgage Loan Originator
Rules. Some of the topics mentioned
were: (1) whether to permit different
loan originator compensation for
originating State housing finance
authority loans as compared to other
loans; (2) whether to permit creditors to
decrease a loan originator’s
90 12 CFR 1026.36(j); CFPB, Supervisory
Highlights, Issue 8, Summer 2015 (June 2015),
https://files.consumerfinance.gov/f/201506_cfpb_
supervisory-highlights.pdf.
91 12 CFR 1026.36(f); CFPB, Supervisory
Highlights, Issue 9, Fall 2015 (Oct. 2015), https://
files.consumerfinance.gov/f/201510_cfpb_
supervisory-highlights.pdf; CFPB, Supervisory
Highlights, Issue 13, Fall 2016 (Oct. 2016), https://
files.consumerfinance.gov/f/documents/
Supervisory_Highlights_Issue_13__Final_
10.31.16.pdf; Press Release, CFPB, Consumer
Financial Protection Bureau Sues 1st Alliance
Lending, LLC and Its Principals for Alleged
Unlawful Mortgage Lending Practices (Jan. 15,
2021), https://www.consumerfinance.gov/about-us/
newsroom/consumer-financial-protection-bureausues-1st-alliance-lending-llc-and-its-principals-foralleged-unlawful-mortgage-lending-practices/.
92 83 FR 12881 (Mar. 26, 2018).
93 CFPB, Petition for Rulemaking—William
Kidwell Amend Existing Mortgage Regulation,
Docket ID CFPB–2022–0027–0001, https://
www.regulations.gov/document/CFPB-2022-00270001.
VerDate Sep<11>2014
17:37 Mar 15, 2023
Jkt 259001
compensation due to the loan
originator’s error or to match
competition; and (3) how the Rule
provisions apply to loans originated by
mortgage brokers and creditors
differently. The Bureau also has
received feedback that Regulation Z’s
Mortgage Loan Originator Rules provide
important consumer protections that
have provided benefits to consumers
and the market.
The Bureau’s experience suggests
there is little overlap, duplication, or
conflict between Regulation Z’s
Mortgage Loan Originator Rules and
Federal, State, or other rules.
II. Request for Comment
Consistent with the section 610
review plan, the Bureau asks the public
to comment on the impact of Regulation
Z’s Mortgage Loan Originator Rules on
small entities 94 by reviewing the
following factors:
(1) The continued need for the Rules
based on the stated objectives of
applicable statutes and the Rules;
(2) The complexity of the Rules;
(3) The extent to which the Rules
overlap, duplicate or conflict with other
Federal rules, and, to the extent feasible,
with State and local governmental rules;
(4) The degree to which technology,
market conditions, or other factors have
changed the relevant market since the
rule was evaluated, including:
a. How the impacts of the Rules as a
whole, and of major components or
provisions of the Rules, may differ by
origination channel, product type, or
other market segment;
b. The current scale of the economic
impacts of the Rules as a whole, and of
major components or provisions of the
Rules, on small entities; and
(5) Other current information relevant
to the factors that the Bureau considers
in completing a section 610 review
under the RFA, as described above.
Where possible, please submit
detailed comments, data, and other
information to support any submitted
positions.
Rohit Chopra,
Director, Consumer Financial Protection
Bureau.
[FR Doc. 2023–05295 Filed 3–15–23; 8:45 am]
BILLING CODE 4810–AM–P
94 For purposes of reviewing the questions for
comment, consult the following list of regulatory
provisions generally comprising Regulation Z’s
Mortgage Loan Originator Rules: 12 CFR
1026.25(c)(2), 1026.36(a) and (b), (d) through (j) and
accompanying sections in Supplement I to part
1026 of the Official Interpretations.
PO 00000
Frm 00008
Fmt 4702
Sfmt 4702
16205
FEDERAL COMMUNICATIONS
COMMISSION
47 CFR Part 73
[MB Docket No. 23–78; RM–11946; DA 23–
159; FR ID 130447]
Television Broadcasting Services Elko,
Nevada
Federal Communications
Commission.
ACTION: Proposed rule.
AGENCY:
The Commission has before it
a petition for rulemaking filed by Reno
(KENV–TV) Licensee, Inc. (Petitioner),
the licensee of KENV–DT, channel 10,
Elko, Nevada. The Petitioner requests
the substitution of channel 20 for
channel 10 at Elko in the Table of
Allotments.
SUMMARY:
Comments must be filed on or
before April 17, 2023 and reply
comments on or before May 1, 2023.
ADDRESSES: Federal Communications
Commission, Office of the Secretary, 45
L Street NE, Washington, DC 20554. In
addition to filing comments with the
FCC, interested parties should serve
counsel for the Petitioner as follows:
Scott Flick, Esq., Pillsbury Winthrop
Shaw Pittman LLP, 1200 17th Street
NW, Washington, DC 20036.
FOR FURTHER INFORMATION CONTACT:
Joyce Bernstein, Media Bureau, at (202)
418–1647; or Joyce Bernstein, Media
Bureau, at Joyce.Bernstein@fcc.gov.
SUPPLEMENTARY INFORMATION: In
support, the Petitioner states that the
Commission has recognized that VHF
channels pose challenges for their use in
providing digital television service,
including propagation characteristics
that allow undesired signals and noise
to be receivable at relatively far
distances and result in large variability
in the performance of indoor antennas
available to viewers with most antennas
performing very poorly on high VHF
channels. According to the Petitioner,
KENV ‘‘has received numerous
complaints from local viewers who can
receive signals from other local stations
but are unable to receive the Station’s
over-the-air signal on Channel 10.’’
Petitioner asserts that its channel
substitution proposal will serve the
public interest by ‘‘improving the
receivability of the Station’s signal and,
in turn improve over-the-air service to
local viewers.’’ An analysis provided by
the Petitioner using the Commission’s
TVStudy software tool indicates that no
persons within the Station’s current
noise limited contour will lose service
and an additional 1,367 persons are
predicted to gain service.
DATES:
E:\FR\FM\16MRP1.SGM
16MRP1
]]>Agencies
[Federal Register Volume 88, Number 51 (Thursday, March 16, 2023)]
[Proposed Rules]
[Pages 16198-16205]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-05295]
========================================================================
Proposed Rules
Federal Register
________________________________________________________________________
This section of the FEDERAL REGISTER contains notices to the public of
the proposed issuance of rules and regulations. The purpose of these
notices is to give interested persons an opportunity to participate in
the rule making prior to the adoption of the final rules.
========================================================================
Federal Register / Vol. 88, No. 51 / Thursday, March 16, 2023 /
Proposed Rules
[[Page 16198]]
BUREAU OF CONSUMER FINANCIAL PROTECTION
12 CFR Part 1026
[Docket No. CFPB-2023-0017]
Regulation Z's Mortgage Loan Originator Rules Review Pursuant to
the Regulatory Flexibility Act
AGENCY: Bureau of Consumer Financial Protection.
ACTION: Notice of section 610 review and request for public comment.
-----------------------------------------------------------------------
SUMMARY: The Consumer Financial Protection Bureau (CFPB or Bureau) is
conducting a review of Regulation Z's Mortgage Loan Originator Rules
(Loan Originator Rules) pursuant to section 610 of the Regulatory
Flexibility Act. Regulation Z, which implements the Truth in Lending
Act (TILA), among other things, imposes certain requirements on: loan
originator compensation; qualification of, and registration or
licensing of, loan originators; compliance procedures for depository
institutions; mandatory arbitration; and the financing of single
premium credit insurance. As part of this review, the Bureau is seeking
comment on the economic impact of the Loan Originator Rules on small
entities. These comments may assist the Bureau in determining whether
the Loan Originator Rules should be continued without change or amended
or rescinded to minimize any significant economic impact of the rules
upon a substantial number of such small entities, consistent with the
stated objectives of applicable Federal statutes.
DATES: Comments must be received on or before May 1, 2023.
ADDRESSES: You may submit comments, identified by Docket No. CFPB-2023-
0017, by any of the following methods:
Federal eRulemaking Portal: https://www.regulations.gov.
Follow the instructions for submitting comments.
Email: [email protected].
Include Docket No. CFPB-2023-0017 in the subject line of the message.
Mail/Hand Delivery/Courier: Comment Intake--Loan
Originator Rules RFA Review, c/o Legal Division Docket Manager,
Consumer Financial Protection Bureau, 1700 G Street NW, Washington, DC
20552. Because paper mail in the Washington, DC area and at the Bureau
is subject to delay, commenters are encouraged to submit comments
electronically.
Instructions: The Bureau encourages the early submission of
comments. All submissions must include the document title and docket
number. Please note the number of the topic on which you are commenting
at the top of each response (you do not need to address all topics). In
general, all comments received will be posted without change to
www.regulations.gov.
All submissions in response to this request for information,
including attachments and other supporting materials, will become part
of the public record and subject to public disclosure. Proprietary
information or sensitive personal information, such as account numbers
or Social Security numbers, or names of other individuals, should not
be included. Submissions will not be edited to remove any identifying
or contact information.
FOR FURTHER INFORMATION CONTACT: Ezer Smith, Attorney-Advisor, or
Lanique Eubanks, Senior Counsel, Office of Regulations, at 202-435-
7700. If you require this document in an alternative electronic format,
please contact [email protected].
SUPPLEMENTARY INFORMATION: The Regulatory Flexibility Act (RFA) \1\
requires each agency to consider the effect on small entities for
certain rules it promulgates.\2\ Specifically, section 610 of the RFA
provides that each agency shall publish in the Federal Register a plan
for the periodic review of the rules issued by the agency which have or
will have a significant economic impact upon a substantial number of
small entities.\3\
---------------------------------------------------------------------------
\1\ Public Law 96-354, 94 Stat. 1164 (1980).
\2\ The terms ``small entity'' and ``rule'' are defined in the
RFA to include small businesses, small governmental jurisdictions,
and small organizations. See 5 U.S.C. 601.
\3\ 5 U.S.C. 610(a). The Bureau published its plan for
conducting reviews under section 610 of the RFA in the Federal
Register in 2019. See 84 FR 21732 (May 15, 2019).
---------------------------------------------------------------------------
Section 610 provides that the purpose of the review is to determine
whether such rules should be continued without change, or should be
amended or rescinded, consistent with the stated objectives of
applicable statutes, to minimize any significant economic impact of the
rules upon a substantial number of such small entities.\4\ As set forth
in section 610, in each review, agencies must consider several factors:
---------------------------------------------------------------------------
\4\ 5 U.S.C. 610(a).
---------------------------------------------------------------------------
(1) The continued need for the rule;
(2) The nature of public complaints or comments on the rule;
(3) The complexity of the rule;
(4) The extent to which the rule overlaps, duplicates, or conflicts
with Federal, State, or other rules; and
(5) The time since the rule was evaluated or the degree to which
technology, market conditions, or other factors have changed the
relevant market.\5\
---------------------------------------------------------------------------
\5\ 5 U.S.C. 610(b).
---------------------------------------------------------------------------
I. List of Rules for Review
This section lists and briefly describes the rules that the Bureau
plans to review in 2023 under the criteria described by section 610 of
the RFA and pursuant to the Bureau's review plan.\6\
---------------------------------------------------------------------------
\6\ 84 FR 21732 (May 15, 2019).
---------------------------------------------------------------------------
A. The Rules
On July 21, 2010, Congress enacted the Dodd-Frank Wall Street
Reform and Consumer Protection Act (Dodd-Frank Act),\7\ which amended
the Truth in Lending Act (TILA) \8\ by, among other things, expanding
on previous efforts by lawmakers and regulators to strengthen loan
originator qualification requirements and regulate industry
compensation practices.\9\ Congress enacted TILA based on findings that
the informed use of credit resulting from consumers' awareness of the
cost of credit would enhance economic stability and would strengthen
competition among consumer credit providers.\10\ One of the purposes of
TILA is to provide meaningful disclosure of credit terms to enable
consumers to compare credit terms available in the marketplace more
readily and avoid the uninformed use of credit.\11\ TILA also contains
procedural
[[Page 16199]]
and substantive protections for consumers. Section 1403 of the Dodd-
Frank Act created new TILA section 129B(c) for residential mortgage
loans which, among other things, imposed restrictions on loan
originator compensation, strengthened loan originator qualification
requirements, banned certain mandatory arbitration clauses, and
prohibited the financing of single-premium credit insurance and waivers
of Federal consumer claims.\12\
---------------------------------------------------------------------------
\7\ Public Law 111-203, 124 Stat. 1376 (2010).
\8\ 15 U.S.C. 1601 et seq.
\9\ See 15 U.S.C. 1639b; 12 U.S.C. 5103.
\10\ 15 U.S.C. 1601(a).
\11\ Id.
\12\ Dodd-Frank Act section 1403, 124 Stat. 2139.
---------------------------------------------------------------------------
From September 2010 to October 2013, the Board of Governors of the
Federal Reserve System (Board) published two rules that were similar to
new TILA section 129B(c) and the Bureau published three rules
implementing the TILA amendments.\13\ This document refers to these
five rules together as ``Regulation Z's Mortgage Loan Originator
Rules,'' ``the Loan Originator Rules,'' or ``the Rules.''
---------------------------------------------------------------------------
\13\ After enactment of the Dodd-Frank Act, in the preamble to
the 2010 rule, the Board expressed its intent to implement TILA
section 129B(c) in a future rulemaking after notice and opportunity
for further public comment. 75 FR 58509, 58509 (Sept. 24, 2010).
---------------------------------------------------------------------------
Regulation Z's Mortgage Loan Originator Rules, among other things,
prohibit compensating loan originators based on a term of a mortgage
transaction or a proxy for a term of a transaction,\14\ prohibit dual
compensation,\15\ prohibit steering practices that do not benefit a
consumer,\16\ implement licensing and qualification requirements for
loan originators,\17\ and prescribe rules for recordkeeping and
compliance.\18\ The Rules are designed primarily to protect consumers
by reducing incentives for loan originators to steer consumers into
loans with particular terms and by ensuring that loan originators are
adequately qualified.
---------------------------------------------------------------------------
\14\ See 12 CFR 1026.36(d)(1).
\15\ See 12 CFR 1026.36(d)(2).
\16\ See 12 CFR 1026.36(e).
\17\ See 12 CFR 1026.36(f).
\18\ See 12 CFR 1026.25(c)(2).
---------------------------------------------------------------------------
1. The Board's 2010-2011 Rules
The Board published its first and second rules to regulate certain
mortgage loan origination practices (collectively, the Board's Rules)
on September 24, 2010,\19\ and July 20, 2011.\20\ The Board explained
that it aimed to protect consumers from unfair or abusive lending
practices that can arise from certain loan originator compensation
practices, while preserving responsible lending and sustainable home
ownership.\21\ The Board's Rules amended Regulation Z to include new
restrictions on loan originator compensation and practices and record
retention requirements that were similar to many of the Dodd-Frank
Act's TILA amendments. The Board's Rules primarily applied to closed-
end consumer credit transactions secured by a dwelling.\22\ The Board's
Rules took effect on April 6, 2011.\23\
---------------------------------------------------------------------------
\19\ 75 FR 58509 (Sept. 24, 2010).
\20\ 76 FR 43111 (July 20, 2011).
\21\ 75 FR 58509, 58509 (Sept. 24, 2010).
\22\ Id. In comment 36-1, the Board's Rules explained the scope
of coverage of a number of provisions, such as prohibited payments
to loan originators under 12 CFR 226.36(d) and the prohibition on
steering 12 CFR 226.36(e) both applying to closed-end consumer
credit transactions secured by a consumer's principal dwelling and
secured by first or subordinate liens, and reverse mortgages that
are not home-equity lines of credit subject to certain restrictions.
\23\ The Board initially set the compliance date for the
September 2010 Board Rule as April 1, 2011. See 75 FR 58509 (Sept.
24, 2010). On March 31, 2011, the United States Court of Appeals for
the District of Columbia Circuit entered an administrative stay of
the September 2010 Board Rule, see Per Curiam Order at 1, Nat`l
Assoc. of Mortg. Brokers v. Fed. Rsrv. Sys., No. 11-5078 (D.C. Cir.
Mar. 31, 2011), which it then dissolved on April 5, 2011. See Per
Curiam Order at 1, Nat'l Assoc. of Mortg. Brokers, No. 11-5078 (D.C.
Cir. Apr. 5, 2011). On July 10, 2011, the Board published final
revisions to the official staff commentary to the September 2010
Board Rule. See 76 FR 43111 (July 20, 2011). These revisions, which
were effective as of July 20, 2011, updated the compliance date for
the September 2010 Board Rule from April 1, 2011, to April 6, 2011,
to reflect the issuance and dissolution of the administrative stay.
---------------------------------------------------------------------------
Definition of Loan Originator. Under the Board's Rules, the term
``loan originator'' was defined as a person who for compensation or
other monetary gain, or in expectation of compensation or other
monetary gain, arranges, negotiates, or otherwise obtains an extension
of consumer credit for another person.\24\ The term ``loan originator''
includes an employee of the creditor if the employee meets this
definition.\25\ The term ``loan originator'' includes the creditor only
if the creditor does not provide the funds for the transaction at
consummation out of the creditor's own resources, including drawing on
a bona fide warehouse line of credit, or out of deposits held by the
creditor.\26\ For purposes of the Board's Rules, a mortgage broker with
respect to a particular transaction is any loan originator that is not
an employee of the creditor.\27\ Therefore, the activities of a ``loan
originator'' include both mortgage broker entities as well as
individual mortgage loan officers.
---------------------------------------------------------------------------
\24\ 75 FR 58509, 58533 through 58535 (Sept. 24, 2010) (codified
at 12 CFR 226.36(a)(1) and comment 36(a)-1.i).
\25\ Id. at 58534, 58535 (codified at 12 CFR 226.36(a)(1) and
comment 36(a)-1.i).
\26\ Id. (codified at 12 CFR 226.36(a)(1) and comment 36(a)-1.i-
ii, -3).
\27\ Id. (codified at 12 CFR 226.36(a)(2) and comment 36(a)-2).
---------------------------------------------------------------------------
Prohibited Payments to Loan Originators: Compensation Based on
Transaction Terms or Conditions. The Board's Rules prohibited paying
compensation, directly or indirectly, to a mortgage broker or any other
loan originator that was based on a mortgage transaction's terms or
conditions, other than the amount of credit extended.\28\
---------------------------------------------------------------------------
\28\ 75 FR 58509, 58534 through 58536 (Sept. 24, 2010) (codified
at 12 CFR 226.36(d)(1) and comment 36(d)(1)-1 to -9).
---------------------------------------------------------------------------
Prohibited Payments to Loan Originators: Payments by Persons other
than the Consumer. The Board's Rules prohibited any person from paying
compensation to a loan originator for a particular transaction if the
consumer pays the loan originator's compensation directly (dual
compensation).\29\
---------------------------------------------------------------------------
\29\ Id. at 58534, 58536, 58537 (codified at 12 CFR 226.36(d)(2)
and comment 36(d)(2)-1 to -3).
---------------------------------------------------------------------------
Prohibition on Steering. The Board's Rules prohibited a loan
originator from steering a consumer to consummate a loan that provides
the loan originator with greater compensation than other transactions
the loan originator offered or could have offered to the consumer,
unless the loan is in the consumer's interest.\30\ The Board's Rules
also included a safe harbor provision providing that a loan originator
could satisfy the anti-steering provisions if it presented a consumer
with loan options that met certain criteria.\31\
---------------------------------------------------------------------------
\30\ Id. at 58534, 58537 (codified at 12 CFR 226.36(e)(1) and
comment 36(e)(1)-1 to -3).
\31\ Id. (codified at 12 CFR 226.36(e)(2) and (3) and comments
36(e)(1)-1 to -3 and 36(e)(2)-1 to -4).
---------------------------------------------------------------------------
Record Retention: Prohibited Payments to Loan Originators. The
Board's Rules provided that for each transaction subject to the
provisions concerning prohibited payments to loan originators, a
creditor must maintain records of the compensation it provided to the
loan originator for the transaction as well as the compensation
agreement in effect on the date the interest rate was set for the
transaction.\32\
---------------------------------------------------------------------------
\32\ Id. at 58534 (codified at comment 25(a)-5).
---------------------------------------------------------------------------
2. The Bureau's 2013 Rules
In 2013, the Bureau issued three rules amending Regulation Z to
implement the Dodd-Frank Act's amendments to TILA regarding loan
originator compensation as well as the Dodd-Frank Act's provisions
prohibiting certain arbitration agreements and the financing of certain
credit insurance in connection with a mortgage loan. The Bureau issued
its first rule on February 15, 2013,\33\ the second on May 31,
2013,\34\ and the third on October 1, 2013 \35\
[[Page 16200]]
(collectively the Bureau's Rules). The Bureau explained in the preamble
to the first of the Bureau's Rules that the mortgage market crisis
focused attention on the critical role that loan officers and mortgage
brokers play in the loan origination process, noting that consumers
rely heavily on loan officers and mortgage brokers to guide them and
how, prior to the crisis, training and qualification standards for loan
originators varied widely and compensation was frequently structured to
give loan originators strong incentives to steer consumers into more
expensive loans.\36\ The Bureau further explained that the Dodd-Frank
Act was expanding on previous efforts by lawmakers and regulators to
strengthen loan originator qualification requirements and regulate
industry compensation practices and that the Bureau was issuing new
rules to implement the Dodd-Frank Act requirements, as well as revising
and clarifying existing regulations and commentary on loan originator
compensation.\37\
---------------------------------------------------------------------------
\33\ 78 FR 11280 (Feb. 15, 2013).
\34\ 78 FR 32547 (May 31, 2013).
\35\ 78 FR 60382 (Oct. 1, 2013).
\36\ 78 FR 11280, 11280 (Feb. 15, 2013).
\37\ Id.
---------------------------------------------------------------------------
The Bureau's Rules addressed the following major topics:
Definition of Loan Originator. The Bureau's Rules expanded upon the
definition of a ``loan originator'' by outlining a set of activities or
services that, if done for or in the expectation of compensation or
gain, makes the person doing such activities or performing such
services a loan originator, unless otherwise excluded. The term ``loan
originator'' means a person who, in expectation of direct or indirect
compensation or other monetary gain or for direct or indirect
compensation or other monetary gain, performs any of the following
activities: takes an application; offers, arranges, assists a consumer
in obtaining or applying to obtain, negotiates, or otherwise obtains or
makes an extension of consumer credit for another person; or through
advertising or other means of communication represents to the public
that such person can or will perform any of these activities.\38\ The
definition of loan originator includes five specific exclusions,
including for persons who ``perform[ ] purely administrative or
clerical tasks'' on behalf of a loan originator and who engage in
certain seller financing activities.\39\ The term ``loan originator
organization'' is any loan originator that is not an individual loan
originator.\40\ Therefore, the term ``loan originator'' includes an
employee, agent, or contractor of the creditor or loan originator
organization if the employee, agent, or contractor meets this
definition.\41\
---------------------------------------------------------------------------
\38\ Id. at 11410, 11414, 11415 (codified at 12 CFR
1026.36(a)(1)(i) and comment 36(a)-1.i.A).
\39\ Id. at 11410, 11415, 11416 (codified at 12 CFR
1026.36(a)(1)(i)(A) through (E) and comments 36(a)-1.ii-v; -4); 78
FR 60382, 60445 (Oct. 1, 2013) (codified at comment 36(a)(1)(i)(B)-
1).
\40\ 78 FR 11280, 11410, 11415 (Feb. 15, 2013) (codified at 12
CFR 1026.36(a)(1)(i) and comment 36(a)-1.i.D).
\41\ Id. at 11410, 11415 (codified at 12 CFR 1026.36(a)(1)(i)
and comment 36(a)-1.i.B). In its October 2013 Rule, the Bureau
further clarified the definition of loan originator to address: (1)
when employees of a creditor or loan originator in certain
administrative or clerical staff roles are not considered ``loan
originators,'' (and not also agents and contractors, as initially
written in the final rule) and (2) when employees of manufactured
housing retailers may be classified as ``loan originators.'' 78 FR
60382, 60441-45 (Oct. 1, 2013) (codified at 12 CFR 1026.36(a)(1)(i)
and comments 36(a)-1, -4, -5, and 36(a)(1)(i)(B)-1).
---------------------------------------------------------------------------
Prohibited Payments to Loan Originators: Payments Based on a Term
of a Transaction. The Bureau's Rules clarified and revised Regulation Z
to prevent evasion of the prohibition on compensation based on a term
of a transaction adopted in the Board's Rules. For example, the
Bureau's Rules expressly prohibited compensation based in whole or in
part on a factor that is a ``proxy'' for a term of a transaction.\42\
In addition, to prevent incentives to upcharge consumers on their
loans, the Bureau's Rules prohibited loan originator compensation based
upon the profitability of a transaction or a pool of transactions.\43\
However, the Bureau's Rules permitted certain bonuses and retirement
and profit-sharing plans to be based on the terms of multiple loan
originators' transactions.\44\
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\42\ 78 FR 11280, 11411, 11418 through 11423 (Feb. 15, 2013)
(codified at 12 CFR 1026.36(d)(1) and comment 36(d)(1)-1 to -8, -
10); 78 FR 60382, 60446 through 60449 (Oct. 1, 2013) (codified at
comment 36(d)(1)-1, -3, -6). The Board's rule previously included
commentary clarifying that a proxy for a transaction term or
condition would also violate the rule, but the Board's Rule did not
define proxy and provided only one example, and stakeholders
subsequently requested additional clarity from the Bureau on
proxies. See 78 FR 11280, 11323, 11324 (Feb. 15, 2013). The Bureau's
Rule included a definition of proxy in the regulatory text and two
new commentary examples. Under the Bureau's Rules, a factor that is
not itself a term of a transaction is a proxy for a term of the
transaction if the factor consistently varies with that term over a
significant number of transactions, and the loan originator has the
ability, directly or indirectly, to add, drop, or change the factor
in originating the transaction. Id. at 11411, 11419 (codified at 12
CFR 1026.36(d)(1)(i) and comment 36(d)(1)-2.ii).
\43\ 78 FR 11280, 11411, 11418, 11419 (Feb. 15, 2013) (codified
at 12 CFR 1026.36(d)(1)(i) and comment 36(d)(1)-1 and -2).
\44\ Id. at 11411, 11419 through 11423 (codified at 12 CFR
1026.36(d)(iii) through (iv) and comment 36(d)(1)-3).
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Payments by Persons other than Consumer: Dual Compensation. The
Bureau's Rules added an exception to the prohibition on dual
compensation included in the Board's Rules that allowed mortgage
brokers to pay their employees or contractors commissions even if the
consumer paid loan originator compensation to the mortgage broker, as
long as the commissions are not based on the terms of the loans that
they originate.\45\
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\45\ Id. at 11412, 11423, 11424 (codified at 12 CFR
1026.36(d)(2)(i)(C) and comment 36(d)(2)(i)-1).
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Steering. The Bureau's Rules made only minimal changes to the
Board's anti-steering provisions codified in 12 CFR 1026.36(e). The
Bureau's Rules revised the Board's steering provisions to clarify that
where two or more loans available to be presented to a consumer by a
loan originator, for purposes of the safe harbor, have the same total
dollar amount of discount points, origination points, or origination
fees, the loan originator must present the loan with the lowest
interest rate that has the lowest total dollar amount of discount
points, origination points, or origination fees for which the loan
originator has a good faith belief that the consumer likely
qualifies.\46\ The Bureau's Rules also clarified, in the Official
Interpretations, that the loan with the lowest interest rate for which
the consumer likely qualifies is the loan with the lowest rate the
consumer can likely obtain, regardless of how many discount points,
origination points or origination fees the consumer must pay to obtain
it.\47\
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\46\ Id. at 11412, 11424 (codified at 12 CFR
1026.36(e)(3)(i)(C), read in conjunction with 12 CFR
1026.36(e)(3)(ii), and comment 36(e)(3)-3).
\47\ Id. at 11424 (codified at comment 36(e)(3)-3).
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Loan Originator Qualification and Identification Requirements. The
Bureau's Rules implemented a Dodd-Frank Act provision that establishes
certain qualification requirements for loan originators.\48\ The
Bureau's Rules imposed duties on loan originator organizations to
ensure that their individual loan originators are licensed or
registered as applicable under the Secure and Fair Enforcement for
Mortgage Licensing Act of 2008 (SAFE Act) \49\ and other applicable
law.\50\ The Bureau's Rules required that loan originator employers
whose employees are not required to be licensed--including employers
that are depository institutions and bona fide nonprofits--
[[Page 16201]]
must ensure that their employees meet certain character, fitness, and
criminal background standards and must provide their employees with
appropriate training.\51\ The Bureau's Rules also implemented a Dodd-
Frank Act requirement that loan originators provide their unique
identifiers under the Nationwide Mortgage Licensing System and Registry
(NMLSR) on loan documents.\52\
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\48\ Id. at 11412, 11424 through 11426 (codified at 12 CFR
1026.36(f) and comments 36(f)-1 to -3, 36(f)(1)-1, 36(f)(2)-1,
36(f)(3)-1, 36(f)(3)(i)-1 to -2, 36(f)(3)(ii)-1 to -3,
36(f)(3)(ii)(B)-1 to -2, and 36(f)(3)(iii)-1); 78 FR 60382, 60441,
60442, 60449 (Oct. 1, 2013) (codified at 12 CFR 1026.36(f)(3)(i)
through (ii) and comments 36(f)(3)(i)-1, -2 and 36(f)(3)(ii)-1, to -
2).
\49\ 12 U.S.C. 5101 et seq.
\50\ 78 FR 11280, 11412 (Feb. 15, 2013) (codified at 12 CFR
1026.36(f)(1)-(2)).
\51\ Id. at 11412, 11413, 11426 (codified at 12 CFR
1026.36(f)(3) and comments 36(f)(3)(ii)(B)-1, -2, 36(f)(3)(iii)-1, -
2).
\52\ Id. at 11413, 11426, 11427 (codified at 12 CFR 1026.36(g)
and comments 36(g)-1 to -3, 36(g)(1)(ii)-1).
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Prohibition on Mandatory Arbitration Clauses and Waivers of Certain
Consumer Rights. The Bureau's Rules implemented Dodd-Frank Act
restrictions on mandatory arbitration clauses and waivers of Federal
consumer claims. The Bureau's Rules prohibited both (1) including
clauses in a contract or other agreement for a consumer credit
transaction secured by a dwelling that require the consumer to submit
disputes arising out of that agreement to binding arbitration; \53\ and
(2) the application or interpretation of provisions of such loans or
related agreements so as to bar a consumer from bringing a claim in
court in connection with any alleged violation of Federal law.\54\
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\53\ Id. at 11413 (codified at 12 CFR 1026.36(h)(1)).
\54\ Id. (codified at 12 CFR 1026.36(h)(2)).
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Prohibition on Financing Single-Premium Credit Insurance. The
Bureau's Rules prohibited financing any premiums or fees for credit
insurance (such as credit life insurance) in connection with a consumer
credit transaction secured by a dwelling (while allowing credit
insurance to be paid for on a monthly basis).\55\ The Bureau
subsequently clarified what constitutes financing of such premiums by a
creditor, when credit insurance premiums are considered to be
calculated and paid on a monthly basis, and when including the credit
insurance premium or fee in the amount owed is prohibited.\56\
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\55\ 78 FR 11280, 11413 (Feb. 15, 2013) (codified at 12 CFR
1026.36(i)); 78 FR 60382, 60442, 60449 (Oct. 1, 2013) (codified at
12 CFR 1026.36(i) and comment 36(i)-1).
\56\ 78 FR 60382, 60383 (Oct. 1, 2013) (codified at 12 CFR
1026.36(i)(2)(ii) and (iii) and comment 36(i)-1).
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Other Provisions. The Bureau's Rules also extended existing
recordkeeping requirements concerning loan originator compensation in
two ways. First, they required a creditor to maintain records
sufficient to evidence all compensation it pays to a loan originator
and the compensation agreement that governs those payments for three
years after the date of payment. Second, they required a loan
originator organization to maintain records sufficient to evidence all
compensation it receives from a creditor, a consumer, or another
person; all compensation it pays to any individual loan originator; and
the compensation agreement that governs each such receipt or payment,
for three years after the date of each such receipt or payment.\57\
Pursuant to the Dodd-Frank Act, the Bureau's Rules implemented the
requirement for depository institutions, the subsidiaries of such
institutions, and the employees of such institutions or subsidiaries to
establish and maintain procedures reasonably designed to assure and
monitor compliance with the compensation, steering, qualification, and
identification requirements.\58\ The Bureau's Rules also clarified that
the required procedures must be ``written'' to promote transparency,
consistency, and accountability.
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\57\ 78 FR 11280, 11410, 11413, 11414 (Feb. 15, 2013) (codified
at 12 CFR 1026.25(c)(2) and comment 25(c)(2)-1 to -2).
\58\ Id. at 11413 (codified at 12 CFR 1026.36(j)); 78 FR 60382,
60442 (Oct. 1, 2013) (codified at 12 CFR 1026.36(j)(2)). This
provision is similar to the registration procedures pursuant to the
Dodd-Frank Act requirement added by TILA section 129B(b)(2) and a
final rule promulgated by the Federal prudential regulatory agencies
for banks, thrifts, and credit unions requiring the institutions the
Federal prudential regulatory agencies regulate to adopt and follow
written policies and procedures designed to assure compliance with
the registration requirements of the SAFE Act. This specific final
rule was inherited by the Bureau and designated as Regulation G.
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The prohibition on mandatory arbitration clauses and waivers of
Federal consumer claims took effect on June 1, 2013.\59\ The remaining
provisions adopted by the Bureau's 2013 Rules took effect on January 1,
2014,\60\ with the exception of the ban on financing credit insurance,
which took effect on January 10, 2014.\61\
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\59\ 78 FR 11280, 11280 (Feb. 15, 2013).
\60\ 78 FR 60382, 60383 (Oct. 1, 2013).
\61\ The February 2013 Bureau Rule initially set a June 1, 2013,
effective date for the provisions containing the mandatory
arbitration clause prohibition and credit insurance financing
prohibition (amendments to 12 CFR 1026.36(h) and (i)) and a January
10, 2014 effective date for all other provisions. On May 31, 2013,
the Bureau issued a final rule delaying the effective date for the
credit insurance financing prohibition from June 1, 2013 to January
10, 2014. See 78 FR 32547, 32549, 32550 (May 31, 2013). The Bureau
delayed the effective date of these provisions to permit the Bureau
to clarify, before the provisions took effect, their applicability
to transactions other than those in which a lump-sum premium is
added to the loan amount at closing. The Bureau's October 2013 Rule
retained the January 10, 2014 effective date for the credit
insurance financing prohibition (12 CFR 1026.36(i)) but changed the
effective date for the amendments to 12 CFR 1026.36(a), (b), (d),
(e), (f), and (j) from January 10, 2014 to January 1, 2014. 78 FR
60382, 60383 (Oct. 1, 2013).
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No Prohibition on Consumer Payment of Upfront Points and Fees.
Section 1403 of the Dodd-Frank Act contains a section that would
generally have prohibited consumers from paying upfront points or fees
on transactions in which the loan originator compensation is paid by a
person other than the consumer (either to the creditor's own employee
or to a mortgage broker). However, the Dodd-Frank Act also authorizes
the Bureau to waive or create exemptions from the prohibition on
upfront points and fees. The Bureau opted to include a complete
exemption to the prohibition on upfront points and fees in the Bureau's
Rules, noting that the Bureau needed to examine the impact such a
prohibition would have on the mortgage market.\62\
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\62\ 78 FR 11280, 11281 (Feb. 15, 2013) (codified at 12 CFR
1026.36(d)(2)(ii)).
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B. The Market
The Bureau monitors the mortgage origination market as part of its
oversight and enforcement of TILA and Regulation Z, including the
mortgage origination rules that are the subject of this review, as well
as other aspects of the regulation applicable to the market and through
oversight of the SAFE Act and Real Estate Settlement Procedures Act in
Regulations G, H and X, respectively.
1. Market Structure and Participants
The mortgage origination market is one of the United States'
largest consumer financial markets, with an average estimated annual
origination volume of about 10 million \63\ mortgages
[[Page 16202]]
for $2.2 trillion \64\ over the past 10 years.\65\ The market had been
growing in recent years by most measures until a sharp slowdown
occurring in 2022 with the rapid increase in mortgage rates. Market
volume is driven by interest rates, credit availability, and demand for
housing. During periods of relatively low interest rates, demand for
mortgages is generally strong because purchasing power is strong (i.e.,
the monthly cost of a mortgage relative to the loan balance is low).
When interest rates increase, purchasing power is reduced and therefore
demand weakens. Conversely, when interest rates decrease, purchasing
power is increased, driving increased mortgage demand. Decreasing
interest rates also drive demand for refinances independent from the
demand for home purchases. This can lead to large spikes in mortgage
origination demand after large drops in interest rates, as was seen in
2020 and 2021, with rapid reduction in demand when interest rates
increase, as was seen in 2022.\66\ The availability of credit also
affects demand for mortgages. As credit availability is eased, the
ability to obtain mortgage financing is relaxed, enabling more
potential purchasers to access mortgage credit, thereby increasing
demand. Conversely, a tightening in credit availability will restrict
access to mortgage financing and therefore reduce demand. These effects
of credit availability in the market were most pronounced in the lead
up to the Great Recession of 2007-2009, where lax credit underwriting
standards led to high demand for home purchases even as interest rates
began to rise. Subsequently, the crash in the value of owned homes and
the mortgage market led to severe tightening of credit standards and
dampening demand for home ownership even as interest rates declined.
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\63\ See CFPB, Data Point: 2021 Mortgage Market Activity and
Trends (Sept. 19, 2022), https://files.consumerfinance.gov/f/documents/cfpb_data-point-mortgage-market-activity-trends_report_2022-09.pdf (HMDA Datapoint 2021); CFPB, Data Point:
2018 Mortgage Market Activity and Trends (Aug. 30, 2019), https://files.consumerfinance.gov/f/documents/cfpb_2018-mortgage-market-activity-trends_report.pdf (HMDA Datapoint 2018); and CFPB, Data
Point: 2017 Mortgage Market Activity and Trends (May 7, 2018),
https://files.consumerfinance.gov/f/documents/bcfp_hmda_2017-mortgage-market-activity-trends_report.pdf (HMDA Datapoint 2017).
The Bureau calculates average annual HMDA reportable originations
based on total annual originations for 2018 to 2021 from Table 1 in
HMDA Datapoint 2021 and total annual originations for 2011 to 2017
from Table 1A in HMDA Datapoint 2018. In HMDA Datapoint 2018, the
Bureau estimated that HMDA reporters originated about 90 percent of
all originations in the U.S. (see page 11). The Bureau calculates
average annual total originations by multiplying the average annual
HMDA reportable originations by 1.11. The Bureau notes that its 2015
HMDA final rule implemented several reporting changes that took
affected data collected starting in 2018. For example, the 2015 HMDA
rule changed reporting of open-end LOCs from optional to mandatory.
The Bureau does not adjust annual HMDA reportable originations
across time to account for this change when calculating average
annual originations.
\64\ See Fed. Rsrv. Bank of N.Y., Quarterly Report on Household
Debt and Credit Q3 2022 (Nov. 15, 2022), https://www.newyorkfed.org/medialibrary/interactives/householdcredit/data/xls/hhd_c_report_2022q3.xlsx. The Bureau calculates average annual
mortgage origination dollar volume by summing total mortgage
originations across quarters for each year from 2011 to 2021 and
taking the average over those years (see page 6 data tab in
spreadsheet).
\65\ The Bureau notes that the Nationwide Multistate Licensing
System (NMLS) 2021 Annual Mortgage Report implies a lower annual
average dollar volume of originations of $1.3 trillion between 2012
and 2021. See NMLS, 2021 Annual Mortgage Report, https://mortgage.nationwidelicensingsystem.org/about/Reports/2021%20Annual%20Mortgage%20Report.xlsx.
\66\ See HMDA Datapoint 2021. The Bureau's most recent data
point article found that the number of closed-end originations
(excluding reverse mortgages) in 2021 slightly increased by 2.4
percent from 2020. Whereas the number of originations increased by
66.8 percent between 2019 to 2020 largely driven by the refinance
boom that began in 2020. Most of the increase from 2020 to 2021 was
driven by an increase in the number of home purchase loans while the
volume of refinance transactions continued to remain elevated.
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Participation in the market is diverse, ranging from the largest
banks to small community banks, credit unions, and non-depository
lending institutions. Participation by large banks has declined over
the past 10 years as large non-depository creditors emerged as the
primary mortgage providers. In 2014, 11 of the top 25 creditors were
depository institutions, while in 2021 only six of the top 25 were
depository institutions.\67\ In addition to the trend toward mortgage
lending by non-depository institutions, the market has experienced
consolidation with respect to the participation of large creditors. In
2014, the top 25 creditors represented 34 percent of the market, while
in 2021 the top 25 represented 44 percent.\68\
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\67\ See Neil Bhutta et al., Fed. Rsrv. Bd., The 2014 Home
Mortgage Disclosure Act Data, 101 Fed. Res. Bulletin at T.12 (Nov.
2015), https://www.federalreserve.gov/pubs/bulletin/2015/pdf/2014_HMDA.pdf (HMDA Bulletin 2014); HMDA Datapoint 2021 at T.6A.
\68\ Id.
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Most of the Rules apply to institutions that engage in originating
or extending closed-end, consumer credit transactions secured by a
dwelling.\69\ Therefore, all small entities that originate or extend
closed-end consumer credit transactions secured by a dwelling, such as
depository institutions and non-depository institutions, including
mortgage brokers, are likely subject to at least some aspects of the
Rules.
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\69\ 12 CFR 1026.36(b).
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The Bureau estimates the number of small depository institutions
using Federal Financial Institutions Examination Council (FFIEC) and
National Credit Union Administration (NCUA) Reports of Condition and
Income (call reports) data and estimates the number of non-depository
institutions using the Economic Census. In 2010, prior to the
implementation of the Board's 2010 Rule, there were 15,146 depository
institutions (i.e., banks, thrifts, and credit unions).\70\ Of these
institutions, 11,180 (74 percent) originated mortgages and were subject
to the subsequent Regulation Z Loan Originator Rules.\71\ According to
the current Small Business Administration (SBA) threshold of $850
million or less in total assets,\72\ 14,152 (93 percent) of depository
institutions were small at the end of 2010. Of these small depository
institutions, 10,216 (72 percent) were subject to the Rules. The trend
toward depository institution consolidation (which began prior to 2010)
has reduced the total number of depository institutions, and the share
of depository institutions that originate mortgages has increased
slightly since 2010. As of the end of 2021, 7,876 out of 9,887 (80
percent) depository institutions and 6,299 out of 8,278 (76 percent)
small depository institutions were subject to the Rules.\73\
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\70\ Calculated from FFIEC Call Report data, NCUA Call Report
data, and Thrift Financial Report data for all quarters of 2010,
accessed on January 6, 2023.
\71\ The Bureau classifies a bank or thrift as originating any
mortgages if the institution reported a positive outstanding balance
of closed-end loans secured by 1-4 family residential properties on
its Call Report in any of the prior four quarters. The Bureau
classifies a credit union as originating mortgages if the
institution reported a positive total number of real estate loans
granted year-to-date in the final quarter of the year.
\72\ 13 CFR 121.201. Depository institutions have North American
Industry Classification System (NAICS) codes of 522110 (Commercial
Banking), 522130 (Credit Unions), and 522180 (Savings Institutions
and Other Depository Credit Intermediation). All three industries
have size standards of $850 million as of December 19, 2022.
\73\ Calculated from FFIEC Call Report data and NCUA Call Report
data for all quarters of 2021, accessed on January 9, 2023.
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The Bureau relies on data from the 2007 and 2017 Economic Census to
estimate the number of non-depository institutions, including mortgage
brokers, that employed loan originators prior to the implementation of
the Board's 2010 Rule and the number of institutions currently subject
to the Regulation Z Loan Originator Rules.\74\ In 2007,\75\ there were
20,625 mortgage brokers, 20,393 of which were small according to the
SBA's current size standards.\76\ The same year, there were 10,539 non-
depository creditor institutions that originated mortgages, 10,206 of
which were small.\77\ The Bureau assumes that
[[Page 16203]]
all these non-depository institutions are subject to the Rules. The
non-depository mortgage industry has also experienced substantial
consolidation in the last 10 years. In 2017, the number of mortgage
brokers decreased by 67 percent to 6,809, of which 6,670 were
small.\78\ Similarly, the number of non-depository creditor
institutions decreased by 68 percent to 3,289 in 2017, of which 2,904
were small.\79\
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\74\ See U.S. Census Bureau, Stats. of U.S. Bus. Data by Enter.
Receipts Size 2017 (May 2021), https://www.census.gov/data/tables/2017/econ/susb/2017-susb-annual.html (SUSB 2017); U.S. Census
Bureau, Stats. of U.S. Bus. Data by Enter. Receipts Size 2007
(2007), https://www.census.gov/data/tables/2007/econ/susb/2007-susb-annual.html (SUSB 2007).
\75\ The Bureau is aware that a substantial portion of the
changes from 2007 to 2017 may have occurred prior to the 2010 Board
Rule due to the severe downturn in the mortgage market at that time.
The Economic Census is only conducted for years that end in 2 and 7.
The Bureau does not have access to the necessary data to estimate
the number of small entities in 2010.
\76\ The NAICS code for Mortgage Brokers is 522310. As of
December 19, 2022, the SBA size standard threshold for Mortgage
Brokers is $15 million in annual average receipts. The Bureau
calculates the number of firms and small firms using the SUSB 2007.
\77\ The Bureau measures non-depository creditor mortgage
originators using NAICS 522292 (Real Estate Credit). As of December
19, 2022, the SBA size standard threshold for Real Estate Credit
firms is $47 million in annual average receipts. In the SUSB 2007
and 2017, the Census provides counts of firms by receipt size
buckets that do not correspond to all size standards. The Bureau
calculates the number of small Real Estate Credit firms as the
number of firms below $45 million in receipts reported in the SUSB
2007 and SUSB 2017.
\78\ Calculated from SUSB 2007 and SUSB 2017. See note 76,
supra.
\79\ Calculated from SUSB 2007 and SUSB 2017. See note 77,
supra.
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2. Mortgage Origination Process
The primary mortgage origination market, which encompasses the
interaction of the consumer with the loan originator, can be generally
divided into two types of origination channels--retail and wholesale.
In a retail transaction, the consumer deals with a loan officer who is
an individual loan originator employed by the creditor, such as a bank,
credit union, or non-depository creditor. The creditor may operate a
network of branches or communicate with consumers through mail, the
internet, or by phone. The entire origination transaction is conducted
within the corporate structure of the creditor, and the loan is closed
using funds supplied by the creditor. Depending on the type of
creditor, the creditor may hold the loan in portfolio or sell the loan
to investors on the secondary market, as discussed further below.
In a wholesale transaction, the consumer deals with an individual
loan originator that is a mortgage brokerage firm or employed by such a
mortgage brokerage firm. In essence, the wholesale origination channel
consists of creditors that utilize independent third parties to perform
the duties of a loan originator, whereas the retail channel consists of
creditors that utilize employees to perform such duties. Because, in
the context of a wholesale transaction, the mortgage broker operates as
a third party, the mortgage broker seeks offers from many different
creditors, and then act as a liaison between the consumer and whichever
creditor ultimately closes the loan. Generally, at closing, the loan is
consummated by using the creditor's funds, and the mortgage note is
written in the creditor's name. The creditor may hold the loan in
portfolio or sell the loan on the secondary market.
Both retail loan officers and mortgage brokers provide information
to consumers about different types of loans and advise consumers on
choosing a loan. Consumers may rely on loan officers and mortgage
brokers to determine what kind of loan best suits the consumer's needs.
Loan officers and mortgage brokers also take a consumer's completed
loan application for submission to the creditor's loan underwriter. The
application includes the consumer's credit and income information,
along with information about the home to be used as collateral for
either a purchase or refinance. Consumers can work with multiple loan
originators to compare the loan offers that loan originators may obtain
on their behalf from creditors. The loan originator or creditor may
request additional information or documents from the consumer to
support the information in the application and obtain an appraisal of
the property. After origination, the process for underwriting and loan
closing generally occurs with the creditor. However, the retail loan
officer or mortgage broker generally serves as the liaison for the
consumer throughout the process.
As stated, after a loan is closed, the mortgage creditor who made
the loan either through the retail or wholesale origination channel may
keep the loan in portfolio or sell the loan on the secondary market. To
accomplish this, the creditor may sell the whole loan to another
mortgage lender or investor in what is referred to as a correspondent
sale, or the creditor may place the loan into a security to be sold on
the secondary market. A purchaser of a correspondent sale loan may also
place the loan into a security to be sold. In the current marketplace,
a majority of loans originated are ultimately placed into Mortgage
Backed Securities (MBSs) for sale in the secondary market. When a
creditor sells a loan into the secondary market, the creditor is
exchanging an asset (the loan) that produces regular cash flows
(principal and interest) for an upfront cash payment from the
buyer.\80\ The upfront cash payment represents the buyer's present
valuation of the loan's future cash flows, using assumptions about the
rate of prepayments due to property sales and refinancings, the rate of
expected defaults, the rate of return relative to other investments,
and other factors. Secondary market buyers assume considerable risk in
determining the price they are willing to pay for a loan. If, for
example, loans prepay faster than expected or default at higher rates
than expected, the investor will receive a lower return than expected.
Conversely, if loans prepay more slowly than expected, or default at
lower rates than expected, the investor will earn a higher return over
time than expected.
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\80\ For simplicity, this discussion assumes that the secondary
market buyer is a person other than the creditor, such as Fannie
Mae, Freddie Mac, or another institutional financial entity. In
practice, some creditors may securitize their own loans and sell the
securities directly. In this case, the secondary market price is
determined by the price investors are willing to pay for the
subsequent securities. This scenario also does not consider various
risk mitigation techniques, such as risk-sharing counterparties,
credit risk enhancements, or security derivatives.
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3. Loan Originator Compensation Structure
Loan originators are typically paid a commission that is a
percentage of the loan amount. Prior to 2010, it was common for the
percentage to vary based upon the interest rate of the loan or other
loan terms: commissions on loans with higher interest rates, or with
terms such as prepayment penalties, were higher than commission on
loans with lower interest rates or lack of prepayment penalties (just
as the premiums paid by the secondary market for loans vary with the
interest rate or other terms). This was typically called a ``yield
spread premium.'' \81\ In the wholesale context the mortgage broker
might keep the entire yield spread premium as a commission, or they
might provide some of the yield spread premium to the borrower as a
credit against closing costs.\82\
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\81\ The term ``yield spread premium'' has been used in
different contexts in the mortgage industry. Some use the term to
mean solely a payment from a creditor to a mortgage broker for a
higher interest rate, while others use the term to mean anytime a
mortgage is priced at a rate and term that would generate a premium
upon sale in the secondary market.
\82\ Both retail loan officers and mortgage brokers received
compensation in this fashion. Some retail loan officers may also
have been paid salary, bonuses, or a combination of all.
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While this system was in place, it was common for loan originator
commissions to mirror secondary market pricing closely. The ``price''
that the creditor offered to its mortgage brokers or made available to
its loan officers was somewhat lower than the price that the creditor
expected to receive from the secondary market--the creditor kept the
difference as corporate revenue. However, the underlying mechanics of
the secondary market flowed through to the loan originator's
compensation. The higher the interest rate on the loan or the more in
upfront charges the consumer paid to the creditor (or both), the
greater the
[[Page 16204]]
compensation available to the loan originator. This created a situation
in which the loan originator had a financial incentive to steer
consumers into loans with higher interest rates or less favorable terms
or to impose on the consumer additional upfront charges payable to the
creditor. In a perfectly competitive and transparent market,
competition would ensure that this incentive would be countered by the
need to compete with other loan originators to offer attractive loan
terms to consumers. However, the mortgage origination market is neither
always perfectly competitive nor always transparent, and consumers (who
take out a mortgage only a few times in their lives) may be uninformed
about how prices work and what terms they can expect. While these rules
and other CFPB rules have improved transparency and helped to foster
shopping, survey responses of mortgage borrowers continue to show that
a significant portion of consumers who take out a mortgage for home
purchase fail to shop prior to application; that is, they seriously
consider only a single creditor or mortgage broker before choosing
where to apply.\83\ Moreover, prior to 2010, mortgage brokers were free
to charge consumers directly for additional origination points or fees,
which were generally described to the consumer as compensating for the
time and expense of working with the consumer to submit the loan
application. This compensation structure was problematic for two
reasons. First, the loan originator had an incentive to steer borrowers
into less favorable pricing terms. Second, the consumer may have paid
origination fees to the loan originator believing that the loan
originator was working for the borrower, without knowing that the loan
originator was receiving compensation from the creditor as well.
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\83\ CFPB, Consumers' Mortgage Shopping Experience (Jan. 2015),
https://files.consumerfinance.gov/f/201501_cfpb_consumers-mortgage-shopping-experience.pdf, and Fannie Mae, One-Third of Recent
Homebuyers Still Don't `Shop Around' for Mortgages (Nov. 2015),
https://files.consumerfinance.gov/f/201501_cfpb_consumers-mortgage-shopping-experience.pdf, and Fannie Mae, One-Third of Recent
Homebuyers Still Don't `Shop Around' for Mortgages (Nov. 18, 2022),
https://www.fanniemae.com/research-and-insights/perspectives/homebuyers-shop-around-mortgages.
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In recent years, compensation structures have changed to reduce, if
not eliminate, most problematic incentives. This has been due to
several factors: (1) the restrictions on loan originator compensation
imposed under the Board's Rules, which took effect in 2010; (2) the
enactment of TILA section 129B(c) through the Dodd-Frank Act, which
largely codified those restrictions in 2010; and (3) amendments to
Regulation Z by the CFPB in 2013. Today, loan originator compensation
is primarily determined as a percentage of the loan amount being
originated as specifically permitted by TILA. Typical compensation
structures might also include adjustments for the number of
originations in a certain time period.\84\
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\84\ Regulation Z's Mortgage Loan Originator Rules outline
permissible methods of compensation as: (1) loan originator's
overall dollar volume (i.e., total dollar amount of credit extended
or total number of transactions originated), delivered to the
creditor; (2) long-term performance of the originator's loans; (3)
an hourly rate of pay to compensate the originator for the actual
number of hours worked; (4) whether the consumer is an existing
customer of the creditor or a new customer; (5) a payment that is
fixed in advance for every loan the originator arranges for the
creditor; (6) the percentage of applications submitted by the loan
originator to the creditor that results in consummated transactions;
and (7) the quality of the loan originator's loan files (e.g.,
accuracy and completeness of the loan documentation) submitted to
the creditor. Comment 36(d)(1)-2.i.
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C. Bureau Resources and Analysis
Since issuing Regulation Z's Mortgage Loan Originator Rules, the
Bureau has published numerous reports and other materials on the
mortgage origination market. In 2018, the Bureau issued its first
annual series of data point articles describing mortgage market
activity based on data reported under the Home Mortgage Disclosure Act
(HMDA).\85\ The annual data point article typically covers mortgage
applications and originations, mortgage outcomes by demographic groups
and loan types, monthly mortgage trends and activities, and information
on the lending institutions that reported lending activities under
HMDA. The Bureau has also released several articles concerning the
mortgage origination market. These articles have covered various
issues, such as consumer finance in rural Appalachia, first-time
homebuyers, types of changes that occur during the mortgage origination
process, profiles of older adults living in mobile homes, manufactured
housing finance, and Asian American and Pacific Islanders in the
Mortgage Market.\86\
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\85\ CFPB, Data Point: 2017 Mortgage Market Activity and Trends
(May 7, 2018), https://files.consumerfinance.gov/f/documents/bcfp_hmda_2017-mortgage-market-activity-trends_report.pdf. HMDA data
are used to assist in determining whether financial institutions are
serving the housing credit needs of their local communities;
facilitate public entities' distribution of funds to local
communities to attract private investment; and help identify
possible discriminatory lending patterns and enforce
antidiscrimination statutes.
\86\ CFPB, Consumer Finances in Rural Appalachia: Data Point
(Sept. 2022), https://files.consumerfinance.gov/f/documents/cfpb_consumer-finances-in-rural-appalachia_report_2022-09.pdf; CFPB,
Market Snapshot: First-time Homebuyers (Mar. 2020), https://files.consumerfinance.gov/f/documents/cfpb_market-snapshot-first-time-homebuyers_report.pdf; CFPB, How Mortgages Change Before
Origination (Oct. 2020), https://files.consumerfinance.gov/f/documents/cfpb_data-point_how-mortgages-change-before-origination.pdf; CFPB, Data Spotlight: Profiles of Older Adults
Living in Mobile Homes (May 2022), https://www.consumerfinance.gov/consumer-tools/educator-tools/resources-for-older-adults/data-spotlight-profiles-of-older-adults-living-in-mobile-homes/; CFPB,
Manufactured Housing Finance: New Insights from the Home Mortgage
Disclosure Act Data (May 2021), https://files.consumerfinance.gov/f/documents/cfpb_manufactured-housing-finance-new-insights-hmda_report_2021-05.pdf; CFPB, Data Point: Asian American and
Pacific Islanders in the Mortgage Market: Using the 2020 HMDA Data
(July 2021), https://files.consumerfinance.gov/f/documents/cfpb_aapi-mortgage-market_report_2021-07.pdf.
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Through its supervisory and enforcement programs, the Bureau
performs examinations of large banks and certain nonbanks for
compliance with Federal consumer financial laws and entered into
consent orders where noncompliance is observed. Since 2015, the Bureau
has, through its publication of Supervisory Highlights on its
supervisory program and certain litigation-related documents on its
enforcement actions, reported noncompliance with aspects of Regulation
Z's Mortgage Loan Originator Rules involving: (1) compensation based on
a term of a transaction \87\ where: (a) loan originators received
compensation based, in part, on the interest rates of the loans they
closed; \88\ and (b) loan originators were paid differently based on
product type where the product type contained different terms; \89\ (2)
failure of a depository institution to establish
[[Page 16205]]
and maintain required written policies and procedures reasonably
designed to monitor compliance with the requirements concerning
prohibited payments to loan originators and the prohibitions on
steering, qualification, and identification; \90\ and (3) failure of a
loan originator organization to ensure employees engaged in loan
originator activities are properly licensed and registered in
accordance with applicable State and Federal requirements.\91\
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\87\ 12 CFR 1026.36(d)(1)(i).
\88\ Press Release, CFPB, CFPB Takes Action Against Castle &
Cooke For Steering Consumers Into Costlier Mortgages (Nov. 7, 2013),
https://www.consumerfinance.gov/about-us/newsroom/cfpb-takes-action-against-castle-cooke-for-steering-consumers-into-costlier-mortgages/
; Press Release, CFPB, CFPB Takes Action Against Franklin Loan
Corporation for Steering Consumers into Costlier Mortgages (Nov. 3,
2014), https://www.consumerfinance.gov/about-us/newsroom/cfpb-takes-action-against-franklin-loan-corporation-for-steering-consumers-into-costlier-mortgages/; Press Release, CFPB, CFPB Orders RPM
Mortgage to Pay $19 Million for Steering Consumers Into Costlier
Mortgages (June 5, 2015), https://www.consumerfinance.gov/about-us/newsroom/cfpb-orders-rpm-mortgage-to-pay-19-million-for-steering-consumers-into-costlier-mortgages/; Press Release, CFPB, CFPB Takes
Action Against Guarantee Mortgage For Loan Originator Compensation
Violations (June 5, 2015), https://www.consumerfinance.gov/about-us/newsroom/cfpb-takes-action-against-guarantee-mortgage-for-loan-originator-compensation-violations/.
\89\ CFPB, Supervisory Highlights, Issue 24, Summer 2021 (June
2021), https://files.consumerfinance.gov/f/documents/cfpb_supervisory-highlights_issue-24_2021-06.pdf; CFPB, Supervisory
Highlights, Issue 26, Spring 2022 (May 2022), https://files.consumerfinance.gov/f/documents/cfpb_supervisory-highlights_issue-26_2022-04.pdf.
\90\ 12 CFR 1026.36(j); CFPB, Supervisory Highlights, Issue 8,
Summer 2015 (June 2015), https://files.consumerfinance.gov/f/201506_cfpb_supervisory-highlights.pdf.
\91\ 12 CFR 1026.36(f); CFPB, Supervisory Highlights, Issue 9,
Fall 2015 (Oct. 2015), https://files.consumerfinance.gov/f/201510_cfpb_supervisory-highlights.pdf; CFPB, Supervisory
Highlights, Issue 13, Fall 2016 (Oct. 2016), https://files.consumerfinance.gov/f/documents/Supervisory_Highlights_Issue_13__Final_10.31.16.pdf; Press Release,
CFPB, Consumer Financial Protection Bureau Sues 1st Alliance
Lending, LLC and Its Principals for Alleged Unlawful Mortgage
Lending Practices (Jan. 15, 2021), https://www.consumerfinance.gov/about-us/newsroom/consumer-financial-protection-bureau-sues-1st-alliance-lending-llc-and-its-principals-for-alleged-unlawful-mortgage-lending-practices/.
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D. Previous Input to the Bureau
The Bureau has received feedback on Regulation Z's Mortgage Loan
Originator Rules through a variety of forums since the Rules were
adopted. For example, in 2018, the Bureau published a Request for
Information (RFI) on whether, consistent with its statutory authority
to prescribe rules pursuant to the Federal consumer financial laws, the
Bureau should amend the regulations or exercise the rulemaking
authorities that it inherited from certain other Federal agencies.\92\
Approximately 29 of the comments submitted in response to the RFI
addressed Regulation Z's Mortgage Loan Originator Rules. Commenters
included trade, consumer advocacy, industry, and other groups. The
Bureau has also received a rulemaking petition seeking certain
revisions to the Rules and other Bureau regulations related to mortgage
origination practices.\93\
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\92\ 83 FR 12881 (Mar. 26, 2018).
\93\ CFPB, Petition for Rulemaking--William Kidwell Amend
Existing Mortgage Regulation, Docket ID CFPB-2022-0027-0001, https://www.regulations.gov/document/CFPB-2022-0027-0001.
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From these and other sources, stakeholders have provided feedback
to the Bureau on many aspects of Regulation Z's Mortgage Loan
Originator Rules. Some of the topics mentioned were: (1) whether to
permit different loan originator compensation for originating State
housing finance authority loans as compared to other loans; (2) whether
to permit creditors to decrease a loan originator's compensation due to
the loan originator's error or to match competition; and (3) how the
Rule provisions apply to loans originated by mortgage brokers and
creditors differently. The Bureau also has received feedback that
Regulation Z's Mortgage Loan Originator Rules provide important
consumer protections that have provided benefits to consumers and the
market.
The Bureau's experience suggests there is little overlap,
duplication, or conflict between Regulation Z's Mortgage Loan
Originator Rules and Federal, State, or other rules.
II. Request for Comment
Consistent with the section 610 review plan, the Bureau asks the
public to comment on the impact of Regulation Z's Mortgage Loan
Originator Rules on small entities \94\ by reviewing the following
factors:
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\94\ For purposes of reviewing the questions for comment,
consult the following list of regulatory provisions generally
comprising Regulation Z's Mortgage Loan Originator Rules: 12 CFR
1026.25(c)(2), 1026.36(a) and (b), (d) through (j) and accompanying
sections in Supplement I to part 1026 of the Official
Interpretations.
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(1) The continued need for the Rules based on the stated objectives
of applicable statutes and the Rules;
(2) The complexity of the Rules;
(3) The extent to which the Rules overlap, duplicate or conflict
with other Federal rules, and, to the extent feasible, with State and
local governmental rules;
(4) The degree to which technology, market conditions, or other
factors have changed the relevant market since the rule was evaluated,
including:
a. How the impacts of the Rules as a whole, and of major components
or provisions of the Rules, may differ by origination channel, product
type, or other market segment;
b. The current scale of the economic impacts of the Rules as a
whole, and of major components or provisions of the Rules, on small
entities; and
(5) Other current information relevant to the factors that the
Bureau considers in completing a section 610 review under the RFA, as
described above.
Where possible, please submit detailed comments, data, and other
information to support any submitted positions.
Rohit Chopra,
Director, Consumer Financial Protection Bureau.
[FR Doc. 2023-05295 Filed 3-15-23; 8:45 am]
BILLING CODE 4810-AM-P
