mortgage reform 2013-2014: what’s in...
TRANSCRIPT
9/26/2013
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BANKERS ASSURANCE COMPLIANCE CONFERENCE
LOAN ORIGINATOR COMPENSATION: 2014 SEPTEMBER 26, 2014
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TriNovus, LLC © 2013 Presenter: Leah M. Hamilton, Director TriComply Services
© 2013 TriComply Compliance Services
About the Speaker
Leah M. Hamilton
Director of TriComply Services with TriNovus
Serves about 850 financial institutions; 4700+ users
More than 18 years of experience in the financial services industry
A licensed attorney for more than 10 years, received Juris Doctorate from Northern Illinois University College of Law, and her Bachelor of Arts in General Studies degree from the University of Texas at Dallas with major in law and minor in business management
Nationally recognized speaker on banking compliance, including BSA/AML, offering real world stories to offer levity to very tough topics
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What you will learn
Coverage
Who is and who isn’t a loan originator
Loan originator qualifications
What is compensation
What is a term or proxy
There’s more
Action Plan
Resources
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© 2013 TriComply Compliance Services
Which loans are covered?
Must be:
Consumer
Closed end
Secured by a dwelling
Can be:
First or subordinate lien
Reverse mortgage
Can’t be:
HELOC
Timeshare
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NEW
Effective
date:
January 1st,
2014
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Who is a loan originator?
Takes a residential mortgage loan
application; and
Offers or negotiates terms of a
residential mortgage loan
For compensation or gain
Takes an application, or
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
For compensation or gain
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MORTGAGE LOAN ORIGINATOR
SAFE ACT 12 CFR 1007.102
LOAN ORIGINATOR
REGULATION Z 12 CFR 1026.36
© 2013 TriComply Compliance Services
More LO details
Includes
An employee, agent, or contractor of the creditor or loan originator organization if the employee, agent, or contractor meets this definition
A creditor that engages in loan origination activities if creditor does not finance the transaction at consummation out of the creditor's own resources, including by drawing on a bona fide warehouse line of credit or out of deposits held by the creditor
All creditors that engage in loan origination activities are loan originators
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Taking an Application
If you:
Fill out the application (paper or electronic; in person or over the phone), or
Process or analyze the data on the application, or
Discuss specific credit terms
Then, you are an LO
If you:
Hand a consumer an application form, or
Explain the information requested on an application or where on the application the information goes at the consumer’s inquiry, or
Accept or receive a completed application, or
Pass the application on to a LO without helping the consumer complete it or talk about specific credit terms
Then, you are not an LO
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Who isn’t a loan originator?
Does not include:
Performs purely administrative or clerical tasks on behalf of a person who does engage in such activities
Does not take a consumer credit application or offer or negotiate credit terms available from a creditor,
A servicer or servicer's employees, agents, and contractors who offer or negotiate terms for purposes of
renegotiating, modifying, replacing, or subordinating principal of existing mortgages where consumers are behind in their payments, in default, or have a reasonable likelihood of defaulting or falling behind
Exception does not apply if offer or negotiate a transaction that constitutes a refinancing or obligates a different consumer on the existing debt
Other exceptions
Certain manufactured home retailer employees
Certain real estate brokerage firms, unless such person is compensated by creditor or loan originator or by any agent of such creditor or loan originator for a particular consumer credit transaction
Seller financer that meets certain criteria
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Simplicity
Application related administrative and clerical tasks
Inquiries and general information
Describe loan processing process
Underwriting, credit approval, credit pricing
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Simplicity
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All MLOs are LOs . . . but . . .
Not all LOs are MLOs
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Loan originator qualifications
Licensed
Registered and licensed
NMLS registered
NMLS ID#
For example
MLOs
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Loan originator qualifications
Non-licensed
Criminal back ground check
Don’t count expunged or pardoned records
Credit report
NMLSR info (if any)
What LO tells you
Can’t have
Felony in domestic violence or military court in last 7 years
Felony involving act of fraud, dishonesty, breach of trust, money laundering at any time
Okay if regulator says so though
Subject to conditions
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What is compensation?
Salaries
Commissions
Bonuses
Incentives
Prizes, awards, trips, days off,
gift cards
Call a rose by any other name
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What is okay?
Compensation into a designated tax-advantaged
plan or a benefit under a defined benefit plan that
is a designated tax-advantaged plan.
If a defined contribution plan, contribution shall not be
directly or indirectly based on the terms of that
individual loan originator's transactions
Examples
401k and other IRS defined retirement plans
Employee annuity plan
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Let’s talk about that bonus
Non-deferred profits-based compensation plan
i.e., any arrangement for the payment of non-deferred compensation that is determined with reference to the profits of the person from mortgage-related business), provided that:
Not directly or indirectly based on the terms of that individual loan originator's transactions; and
At least one of the following conditions is satisfied:
Compensation paid to an individual LO does not, in the aggregate, exceed 10% of his/her total compensation corresponding to the time period for which the compensation under the non-deferred profits-based compensation plan is paid; or
Individual LO was a LO for 10 or fewer transactions during the 12-month period preceding the date of compensation is determined
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What is a term of a transaction
Any right or obligation of the parties to a credit transaction
Amount of credit extended is not a term of a transaction or a proxy for a term of a transaction
Provided that based on a fixed percentage of amount of credit extended
May be subject to a minimum or maximum dollar amount
“Based on” a term of a transaction
Does not require a comparison of multiple transactions or proof that any person subjectively intended that there be a relationship between the amount of the compensation paid and a transaction term
Determination is based on the objective facts and circumstances indicating that compensation would have been different if a transaction term had been different.
Generally, when there is a compensation policy in place and the objective facts and circumstances indicate the policy was followed, the determination of whether compensation would have been different if a transaction term had been different is made by analysis of the policy.
In the absence of a compensation policy, or when a compensation policy is not followed, the determination may be made based on a comparison of transactions originated and the amounts of compensation paid.
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What is a proxy?
Terms
Interest rate,
APR
LTV
Prepayment penalty included
Closing costs
Not a proxy
Consumer's credit score
Representation of credit risk, e.g., DTI
Assume that consumer A and consumer B receive loans from the same loan originator and the same creditor
Consumer A has a credit score of 650, and consumer B has a credit score of 800
Consumer A's loan has a 7% interest rate, and consumer B's loan has a 6.5% interest rate because of consumers' different credit scores
If creditor pays LO$1,500 for consumer A's loan and $1,000 for consumer B's loan because the creditor varies compensation payments in whole or in part with a consumer's credit score, LO’s compensation would be based on the transactions' terms or conditions
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What can we do?
LOs overall loan volume
total dollar amount of credit extended
total number of loans originated, delivered to the creditor
Long-term performance of the originator's loans
Cannot ding LO for a current loan or retroactively on a prior transaction
Can re-evaluate comp plan for loans going forward
If last quarter (Q1) was bad, next quarter (Q2) pay 5% instead of 10% on loans made in Q2
Q1 was outstanding, so want to increase percentage Paid 10% Q1; pay 15% Q2
Okay even if Q2 interest rates are all higher
Hourly rate of pay for the actual number of hours worked
Whether consumer is an existing customer or a new customer
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What can we do?
Payment amount fixed in advance for every loan LO arranges
e.g., $600 for every loan arranged for the creditor, or $1,000 for the first 1,000 loans arranged and $500 for each additional loan arranged
Cannot vary with the amount of credit extended
e.g., 1% of amount of credit extended for loans of $300,000 or more, 2% of amount of credit extended for loans between $200,000 and $300,000, and 3% of amount of credit extended for loans of $200,000 or less
Percentage of applications submitted by the LO to creditor that resulted in consummation
Quality of the loan originator's loan files
e.g., accuracy and completeness of the loan documentation
Legitimate business expense
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There’s more . . .
Record retention
3 years from the date
of compensation paid
Not the consummation
date unless paid that
day
SAFE Act
First written communication
Regulation Z
Each copy
Application
Note / loan agreement
Security instrument
LO and Institution NMLS name and ID#
GSEs and investors
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TRACKING THE MONEY DISCLOSURES REQUIRING ID#
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Action Plan
© 2013 TriComply Compliance Services
Your Action Plan
Read the rules
Skim the proposed rules
Don’t wait for the final!
Submit comments
Reach out to your vendors
Are they already preparing?
Software
Settlement agents
Brokers
Closely monitor CFPB website
Identify staff impacted
Training: who, what, how and when
Risk Assessment
Products/Services
Monitoring schedule
Schedule sample test early on
Budget: time, resources, $$
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Action Plan
“Four P’s”
Policies
Procedures
Products
Personnel
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Questions?
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A strong foundation in compliance is perhaps the most important
building block of your institution, and TriNovus’ TriComply Services can
provide you with the resources you need to ease the burden in today’s
complex compliance environment. 25
• We’ll answer questions specific to your institution via our online Knowledgebase where you can also view questions and answers to issues other institutions are facing
TriComply Knowledgebase
• Access to our regulatory compliance manual, written by bankers for bankers
TriComply Compliance Manual
• We'll review your current compliance policies or create a new template for all to share
• Access to the TriComply Policy Manual
Policies
• We'll review your ads & disclosures for compliance, including UDA(A)P and best practices
Advertisements & Disclosures
• Receive a weekly compliance newsletter authored by Blair Rugh, Leah Hamilton and the TriComply Team addressing the most pressing compliance issues and providing advice for your institution
Compliance Newsletter
• View and share our online compliance videos with your staff
• Certificates of completion provided
Online Training Library
• Keep up-to-date with all the compliance deadlines by using the handy Compliance Calendar located in our TriComply Knowledgebase
Compliance Calendar
CONTACT:
STAR LARGIN
205.541.2127
Thank You!