Conversations About QC: Advocating for Change: MLO Compensation

QC Ally

June 30, 2023

This month’s Conversations About QC features Laura LaRaia, The Money Store’s Chief Legal Officer and Enterprise Risk Officer, and Kristin Broadley, Chief Innovation Officer at QC Ally discussing what you need to know about mortgage loan originator compensation and the potential changes.

As part of Truth in Lending’s Regulation Z, the rule was designed post-2008 housing crisis as a best effort to protect consumers during the mortgage origination process. As it currently stands, the rule dictates that once LO comp is disclosed on the Good Faith Estimate, it can’t be changed. Unfortunately, the rigidity of this rule has made it hard for lenders to navigate – especially the smaller entities.

With the face of the industry much different than it once was and the unintended impacts of the rule well documented, the lending community recently came together to advocate for change in an effort to make the market more competitive for all. The CFPB supported this by opening up a comment period (now closed) to help address some of those challenges.

Many of the opportunities lenders hope to see open up as a revised rule is developed include:

Lean into underserved markets. There is an opportunity to update the rule to eliminate requiring compensation on both payment assistance and first loans. More lenders would then be able to afford to do such loans, creating more opportunity in a contracting market while helping more consumers achieve their homeownership goals.
Revise definition of a loan originator. By refining the definition of the “loan originator”, no longer would lenders be left in a gray area with referrals and other similar instances.
Flexibility within the Closing Disclosure (CD). Currently, lenders receive a hefty penalty if the loan originator’s name and MLS fail to appear on the CD. However, if that information can be found on the application and Loan Estimate, it should be considered reasonable coverage in case a glitch or error led to that information falling off of the CD.

All said and done, refining this rule will eliminate ambiguity and better align with today’s lending landscape. Through advocacy and discussion, the industry continues to improve, benefitting both the lending community and consumers alike. For more information, watch our June 2023 Conversations about QC interview.