Education Notice: Ensure Course Content Pertaining to Loan Originator Compensation is Current Effective April 1, 2011


Course providers are advised that new rules pertaining to MLO compensation go into effect April 1, 2011.  Course content needs to be updated to reflect these changes.  The changes are in response to the Dodd-Frank Wall Street Reform and Consumer Protection Act and are part of final rules that were released by the Federal Reserve on August 16, 2010.  Effective immediately, NMLS will be looking at course content to ensure any discussion pertaining to loan originator compensation complies with the new rules.

Loan Originator Compensation and Steering Final Rules Summary: According to the final rules (Federal Reserve press release dated August 16, 2010) the former practice, where lenders pay loan originators more compensation if the borrower accepts an interest rate higher than the rate required by the lender (commonly referred to as a “yield spread premium”), is no longer allowed.  A loan originator may not receive compensation that is based on the interest rate or other loan terms.  The intent of the new rule is to prevent loan originators from increasing their own compensation by raising the consumers’ loan costs, such as by increasing the interest rate or points.  Loan originators may continue to receive compensation that is based on a percentage of the loan amount.

The final rule also prohibits a loan originator that receives compensation directly from the consumer from also receiving compensation from the lender or other party.  The new rule seeks to ensure that consumers who agree to pay the originator directly do not also pay the originator indirectly through a higher interest rate, thereby paying more in total compensation than they realize.

In addition, the final rule prohibits loan originators from directing or “steering” a consumer to accept a mortgage loan that is not in the consumer’s interests in order to increase the originator’s compensation.

Highlights and additional details of the final rules on Loan Originator Compensation and Steering can be found at: http://www.federalreserve.gov/newsevents/press/bcreg/bcreg20100816d2.pdf

A complete copy of the press release from the Federal Reserve and a link to the rules as posted in the Federal Register is available at: http://www.federalreserve.gov/newsevents/press/bcreg/20100816d.htm

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