200 club webinar on the fed rule sept 29 2010

Fed Rule on Loan Originator Compensation

Fred Kreger, CMC - CAMP Vice-President of Government Affairs

Kenneth A. Jones, Esq., CAMP Government Affairs

Dr. Lesli McCollum Gooch, Potomac Partners DC

Welcome

YOU’VE GOT QUESTIONS…WE’VE GOT

ANSWERS. (BUT IF YOU CAN’T HEAR

US…DIAL THE NUMBER ON YOUR INVITATION EMAIL OR DASHBOARD…OR CLICK ON

USE MIC AND SPEAKERS AND LISTEN ON YOUR COMPUTER)

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Rule Proposed on August 24, 2009.

CAMP’s concern with the amendment is with its intention to regulate loan originator compensation by requiring compensation agreements between lenders and loan originators.

This requirement as proposed would lead to:

• Increased consumer costs driven by reduced competition • Fewer consumer choices • Increased risk of improper steering

Fed Rule on Loan Originator Compensation -Background-

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CAMP Advocated for the Following:

• Make rule apply to all originators

• Hold the proposed rule until the impact of the new GFE is adequately measured

• Do not require compensation agreements

• Eliminate enforcement of rule through “after-the-fact” lawsuits

• Do not increase broker liability through unintended consequences

Fed Rule on Loan Originator Compensation -Background-

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Final Rule released on August 16, 2010 Implementation Date: April 1, 2011

Consistent Compensation Agreement • Who Must Have an Agreement? • What Types of Compensation Formulas are Allowable? • When Does the Agreement Need to be Used?

Anti-Steering and the Safe Harbor Retail Producing Managers and Bonuses

Fed Rule on Loan Originator Compensation -Overview of the Final Rule-

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• Loan Originator

• Broker

What is Compensation?

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A retail loan officer must have an agreement with their employer (a creditor).

A wholesale loan officer must have an agreement with their broker.

A broker must have an agreement with each of the lenders (creditors) with which they do business.

No two agreements need be identical

Who Must Have An Agreement?

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Compensation may not be related to any terms of

the loan except loan amount.

Approvable plans:

• Flat fee

• Hourly Rate

• Percentage of loan amount with optional floor and/or ceiling

Notes:

• It is permissible to use a flat fee and % together. • Agreements may be changed periodically to reflect changing circumstances

What Types of Compensation Formulas are Allowable?

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Quick Poll

Which best describes your current position?

• Retail Loan Officer (a creditor)

• Wholesale Loan Officer

• Wholesale Broker

• Retail Producing Manager

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When Does the Agreement Need to be Used?

1. Wholesale Broker: Whenever compensation comes from any source other than the consumer. If it comes from the consumer, it must come 100% from the consumer.

2. Retail Loan Officer: Every time a retail loan officer receives compensation.

3. Wholesale Loan Officer: TBD (It will be either 1 or 2 from above.)

YSP is not considered consumer funds

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Anti-Steering Provision

The loan originator may not steer a consumer to a loan where they receive a higher compensation unless the loan is in the consumer’s best interest.

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Safe Harbor

For each type of transaction the borrower shows

interest, the loan originator must show loan options from a significant number of creditors that include:

• Loan with lowest simple interest rate.

• Loan with lowest discount and origination fees (0 point loan).

• Loan with lowest simple interest rate that has no exotic features.

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Retail Producing Managers and Bonuses

Any retail employee who is paid compensation as a loan originator may

not receive any branch manager compensation that is related to the profit

of the branch.

Explanation: to allow such would permit loan originators to ultimately receive compensation related to the terms of the loan.

Bonuses may be paid based on volume (UPB or units), loan quality, etc. where not prohibited by other state or federal laws.

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Quick Poll

How will this Rule affect your business?

This Fed Rule will:

• Significantly harm my business.

• Moderately harm my business.

• Have no impact on my business.

• Moderately help my business.

• Significantly help my business.

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We Can Make an Impact!

“I want to turn it around. I want us to stop getting beat up. The best defense is a good offense.”

“Last year was a year of accomplishment as CAMP created and implemented strategies to keep the broker channel viable. The challenge now, is maintaining the energy and funding to

do it all over again.”

-GA Chair, Fred Kreger, CMC

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Your Opportunity

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