SECURE AND FAIR ENFORCEMENT FOR MORTGAGE LICENSING ACT OF 2008 – Restrictions on Loan Originators (Federal)
(S.A.F.E. ACT) - FEDERAL RESERVE BOARD (FRB) FINAL MORTGAGE RULE effective April 1, 2011
The SAFE Act required the Federal Reserve Board (FRB) to establish rules to protect mortgage borrowers from unfair, abusive, or deceptive lending practices that can arise from loan originator compensation practices. The federal Act gave the states one year to pass legislation requiring the licensure of mortgage loan originators according to national standards and the participation of state agencies in the Nationwide Mortgage Licensing System and Registry (NMLS). In response, California enacted SB 36 which has adopted these requirements. The new
FRB rules apply to all loan originators including mortgage brokers and the companies that employ them, as well as mortgage loan officers employed by either depository institutions or other lenders.
Lenders have often paid 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" or YSP). Under this new rule, a loan originator may not receive compensation that is based on the interest rate or other loan terms. This will 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 can continue to receive compensation that is based on a percentage of the loan amount.
The new rule also prohibits a loan originator who receives compensation directly from the consumer from also receiving compensation from the lender or another party. In consumer testing, the Board found that consumers generally are not aware of the payments lenders make to loan originators and how those payments can affect the consumer's total loan cost. 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.
Additionally, the new rule prohibits loan originators from directing or "steering" a
consumer to accept a mortgage loan that is not in the consumer's interest in order to increase the originator's compensation. The rule will preserve consumer choice by ensuring that consumers can choose from loan options that include the loan with the lowest rate and the loan with the least amount of points and origination fees, rather than the loans that maximize the originator's compensation.
Another board rule requires that consumers be notified when their mortgage loan has been sold or transferred. Under the new rule, the company acquiring the loan would be responsible for sending a notice within 30 days of the transfer. This goes into effect January 1, 2011.
In a rule which echoes current California law, lenders would now be required to explain clearly the features and risks associated with reverse mortgages and are prohibited from conditioning a reverse mortgage on the purchase of other financial products such as annuities or long-term care insurance.
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the County of Los Angeles Department of Consumer Affairs.
For more information:
County of Los Angeles Department of Consumer Affairs
B-96 Kenneth Hahn Hall of Administration
500 W. Temple Street * Los Angeles, CA 90012-2706
Telephone (800) 593-8222 (within the County) * (213) 974-1452
Website: dca.lacounty.gov
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