The CFPB has been gutted – and it's unclear whether broker regulation is also on the way out
The Trump administration says it’s not getting rid of the Consumer Financial Protection Bureau (CFPB), despite gutting the agency in recent weeks – but its dramatic scaling back has sparked speculation about what the regulatory landscape will look like for the mortgage industry in the years ahead.
For mortgage brokers, it’s also raised questions about whether rules and guidelines around commission structures and payment will be reformed, with the CFPB responsible for a number of key changes in recent years, including the introductions of the Loan Originator Compensation Rule and TILA-RESPA Integrated Disclosure (TRID) rule in 2015.
The latter aimed to address consumer confusion under the old system and provide transparency, consistency and accountability to mortgage disclosures – but some overall commission structures remain opaque and hard for brokers to get their heads around, according to a New York-based broker.
Andrew Russell (pictured top) of RCG Mortgages told Mortgage Professional America that the industry would benefit from clearer direction by regulators on how compensation should be arranged.
“I think there are a lot of gray areas when it comes to compensation on the broker said – lender paid versus borrower paid,” Russell said. “There’s no direct, clear, written-out explanation. It would be great sometimes if the government, with rules, wasn’t vague – if we all had the same playing field and they said ‘Hey, listen if you do this, then this is OK. If this happens, then you can do this.’
“I think the industry needs [regulation to stop] being so vague and then we all follow the rules which are as clear as black and white.”
How has broker regulation changed?
Prior to 2015, the Good Faith Estimate (GFE) and HUD-1 Settlement Statement were the standard mortgage disclosure forms used to outline loan terms and closing costs, but were replaced by the Loan Estimate (LE) and Closing Disclosure (CD) under the TILA-RESPA rule changes.
Among the major shifts was stricter regulation to improve transparency and limit unexpected cost increases for borrowers by defining so-called “zero tolerance fees” – which can’t be increased from loan estimate to closing disclosure – as well as 10% tolerance fees and “no tolerance fees” which can change without limit.
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Certain changes introduced under that amendment were unnecessary, Russell argued. “I think there was a bit of an overcorrection,” he said. “Some of the fees – if things happen during the transaction and they get added and there’s a reason for it – they can’t be added back. Maybe the buyer’s paying the seller-paid transfer tax, which is atypical, or there was a survey fee that you didn’t know about and nobody told you. Some of those, you can’t add.
“And the mortgage company has to pay for it. I feel like that’s not very fair, and some of those things… I don’t think necessarily the mortgage company should pay for those.”
The net effect of sending a client an inflated loan estimate containing fees they ultimately won’t pay, Russell said, is consumer confusion and the likelihood that they’ll shop around and potentially leave themselves vulnerable to a lower estimate that doesn’t include those fees.
“Some of the overcorrection, hopefully with new changes, will go away,” Russell said. “But I think the biggest thing is just that you need an agency that’s clear as day: ‘This is what compensation is. This is the stuff that’s allowed. This is the stuff that’s not allowed.’
“If you have any type of explanation, maybe there’d be an open forum so they can keep adding and tweaking whatever they’re saying.”
Credit bureaus and reports remain a sore spot for brokers and borrowers
Another prominent headache for brokers at present: credit report costs, which have seen a high-profile spike in recent years and triggered an industry backlash against credit bureaus.
That’s an area which could merit further regulatory oversight, according to Russell. “There’s been a movement for loan officers to charge the borrower up front for the credit report. I just don’t think that makes sense,” he said. “To me, it’s a competitive business – if a client can walk into a retail bank or another company, not pay for it and do a preapproval, why would they pay $100, $200 with me to do it?
“It’s a cost I’ve always taken on as a mortgage professional. But if you think on the broker side, our profitability is not the same as [the lending giants] so when you have a credit report bill that goes from $4,000 to $6,000 and now it’s $25,000, that’s very difficult. And it’s one of those things where there’s really nothing you can do.”
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