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EXPLOSION OF NEW MORTGAGE REGULATION Loan Originator Compensation Rule Mortgage Regulation Teleseminar Series February

EXPLOSION OF NEW MORTGAGE REGULATION Loan Originator Compensation Rule Mortgage Regulation Teleseminar Series February 21, 2013. FINANCIAL SERVICES REGULATORY GROUP

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EXPLOSION OF NEW MORTGAGE REGULATION Loan Originator Compensation Rule Mortgage Regulation Teleseminar Series February

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  1. EXPLOSION OF NEW MORTGAGE REGULATIONLoan Originator Compensation Rule Mortgage Regulation Teleseminar SeriesFebruary 21, 2013

    FINANCIAL SERVICES REGULATORY GROUP Leonard A. Bernstein · lbernstein@reedsmith.comRobert M. Jaworski · rjaworski@reedsmith.comTravis P. Nelson · tnelson@reedsmith.com Kelly Bley · kbley@reedsmith.com
  2. BACKGROUND AND EFFECTIVE DATESReg Z§1026.36 FRB Proposal (August 2009) Dodd-Frank §1403 (July 2010) FRB Final Rule (September 2010) – did not implement §1403 CFPB Final Rule (January 20, 2013) Effective Date (January 10, 2014, except for arbitration/credit insurance provisions which become effective June 1, 2013)
  3. KEY COMPONENTS
  4. SCOPE Closed-end consumer credit transactions secured by a dwelling First- or subordinate-lien Includes closed-end reverse mortgages Certain provisions (arbitration and credit insurance) also apply to HELOCS secured by principal dwelling
  5. PENALTIES – CIVIL ACTIONS
  6. PENALTIES – CIVIL ACTIONS (Continued)
  7. PENALTIES – ADMINISTRATIVE ACTIONS
  8. “Loan Originator” Definition § 1026.36(a)(1)
  9. “Loan Originator” Definition (Continued)
  10. “Loan Originator” Definition (Continued)
  11. “Loan Originator” Definition (Continued)
  12. “Loan Originator” DefinitionNot loan originators…
  13. “Loan Originator” DefinitionNot loan originators… (Continued)
  14. “Loan Originator” DefinitionNot loan originators… (Continued)
  15. “Loan Originator” Definition Not loan originators… (Continued)
  16. “Loan Originator” DefinitionNot loan originators… (Continued)
  17. “Loan Originator” DefinitionNot loan originators… (Continued)
  18. “Loan Originator” Definition
  19. LO QUALIFICATION REQUIREMENTSStandards (§ 1026.36(f)) Scope: “Loan originators” include all creditors for this rule; rule covers transactions secured by dwelling TILA Liability: “Imposes a TILA obligation on all loan originator organizations – mortgage brokers and both nondepository and depository institution mortgage creditors – to ensure that their individual loan originators are licensed or registered to the extent required under the SAFE Act”
  20. LO QUALIFICATION REQUIREMENTSStandards (§ 1026.36(f)) (Continued)
  21. LO QUALIFICATION REQUIREMENTSStandards (§ 1026.36(f)) (Continued)
  22. LO QUALIFICATION REQUIREMENTSStandards (§ 1026.36(f)) (Continued) Can check individual’s status: www.nmlsconsumeraccess.org Subsequent reviews not required unless new knowledge “Financial responsibility”: judgments, tax liens, delinquencies; not required to consider medical debts “Character & general fitness”: acts of dishonesty (including employment applications), disciplinary actions. SAFE HARBOR: For “financial responsibility, character and general fitness” standard, establish and comply with written procedures for that individual. Training – applies regardless of individual’s hiring date.
  23. LO DISCLOSURE REQUIREMENTS(§ 1026.36(g)) Scope: Consumer credit transactions secured by dwelling “Loan Document” Disclosure: LOO must include name and NMLSR ID (if there is one), for both LOO and individual LO. “Loan Documents”: application, note, mortgage; NOT TILA or RESPA disclosure, pending the integration process. TILA Liability – presume liability if disclosure missing
  24. LO COMPENSATION RESTRICTIONSThree prohibitions
  25. LO COMPENSATION RESTRICTIONSThree prohibitions (Continued)
  26. LO COMPENSATION RESTRICTIONSNo comp based on loan terms ( Prohibition applies to both consumer-pay and lender-pay Expansion: current rule - only lender pay Prohibition applies to compensation that is based on: A “term of a transaction” Terms of multiple transactions by individual LO, OR Terms of multiple transactions by multiple individual LOs (e.g., comp based on mortgage-related profits) Term of a transaction” includes any right or obligation of the parties, except under certain circumstances amount of credit extended
  27. LO COMPENSATION RESTRICTIONSNo comp based on loan terms (Continued)
  28. LO COMPENSATION RESTRICTIONSNo comp based on loan terms (Continued)
  29. LO COMPENSATION RESTRICTIONSNo comp based on loan terms (Continued)
  30. LO COMPENSATION RESTRICTIONSNo comp based on loan terms (Continued)
  31. LO COMPENSATION RESTRICTIONSWhat about profit-sharing plans?
  32. LO COMPENSATION RESTRICTIONSWhat about profit-sharing plans? (Continued)
  33. LO COMPENSATION RESTRICTIONSWhat about profit-sharing plans? (Continued)
  34. LO COMPENSATION RESTRICTIONSWhat about profit-sharing plans? (Continued)
  35. LO COMPENSATION RESTRICTIONSWhat about profit-sharing plans? (Continued)
  36. LO COMPENSATION RESTRICTIONSWhat about profit-sharing plans? (Continued)
  37. LO COMPENSATION RESTRICTIONSWhat about profit-sharing plans? (Continued)
  38. LO COMPENSATION RESTRICTIONSWhat about profit-sharing plans? (Continued)
  39. LO COMPENSATION RESTRICTIONSWhat about profit-sharing plans? (Continued) Comp paid under Bonus Plan NOT subject to 10% Limit if plan determined with reference only to profits from non-mortgage-related business “as determined in accordance with reasonable accounting principles” More cautious approach may simply be to apply 10% Limit. Safe harbor for individual LOwho relies in good faith on accounting or statement provided by person who made profits-based compensation determination
  40. LO COMPENSATION RESTRICTIONSNo dual compensation (
  41. LO COMPENSATION RESTRICTIONSNo dual compensation (Continued)
  42. LO COMPENSATION RESTRICTIONSNo dual compensation (Continued)
  43. LO COMPENSATION RESTRICTIONSNo improper steering (
  44. LO COMPENSATION RESTRICTIONSNo improper steering (Continued)
  45. LO COMPENSATION RESTRICTIONSRecords Retention ( Creditors: Must maintain for 3 years records “sufficient to evidence” all payments to individual LOs and LOOs and compensation agreement that governs each payment. LOOs: Must maintain for 3 years: records “sufficient to evidence” (a) all comp received from creditor, consumer, or other person, and (b) all comp paid to any individual LO, and governing compensation agreement(s) Individual LOs: Need not retain these records What constitutes “sufficient to evidence”? Oral agreements: Record retention still applies
  46. Policies and Procedures (
  47. Prohibition on Mandatory Arbitration ( Scope: Consumer credit secured by a dwelling (includingHELOCs) Effective date: June 1, 2013 Arbitration: No mandatory arbitration clauses Consumer and creditor may agree – after dispute arises – to use arbitration to resolve Waivers: No predispute waiver of federal claim Waiver of right to trial by jury OK
  48. Prohibition on Financing Single-Premium Credit Insurance ( Scope: Consumer credit secured by a dwelling (including HELOCs) Effective date: June 1, 2013 Creditor may not finance, directly or indirectly, single premium credit insurance “Credit insurance” = credit life, credit disability, credit property Credit unemployment: May be financed under certain conditions Does not apply to mortgage insurance.
  49. Final Topic in this Four-Part Teleseminar Series To access an audio recording and presentation slides from our previous teleseminars, please visit the series website: http://www.reedsmith.com/Financial-Services-Regulatory-Group-Mortgage-Regulation-Teleseminar-Series/
  50. Leonard A. Bernstein Founder and chair of the firm's Financial Services Regulatory Group Concentrates his practice in the representation of banks, thrifts, mortgage bankers and finance companies in providing consumer credit compliance advice on federal, Pennsylvania and New Jersey laws and regulations The FSR Group addresses credit card, auto finance, deposit, residential mortgage and other retail finance products Nationally known for expertise with federal Truth-in-Lending Act, Real Estate Settlement Procedures Act, and similar laws, and works regularly with federal and state financial services regulators Defends class actions and individual claims filed against financial services providers Elected to the American College of Consumer Financial Services Attorneys lbernstein@reedsmith.com 215 851 8143 Philadelphia, PA 609 520 6005 Princeton, NJ
  51. Robert M. Jaworski Member of the Financial Industry Group and the Financial Services Regulatory Group Focuses on consumer credit compliance and other regulatory issues of concern to banks, thrifts, mortgage bankers, secondary mortgage lenders, finance companies and industry-related trade associations A frequent speaker on compliance issues before state and national groups, Bob has authored numerous articles on the subject Formerly Chief Editor of Pratt’s Mortgage Compliance Letter; Co-Chair of the RESPA/Housing Finance Subcommittee of the ABA Consumer Financial Services Committee; Chair, New Jersey Bar Association Banking Law Section; and Member, Governing Committee of the Conference on Consumer Finance Law Developed and taught courses on federal and state laws and regulations affecting mortgage bankers, brokers, and servicers rjaworski@reedsmith.com 609 520 6003 Princeton, NJ
  52. Travis P. Nelson Member of the Financial Industry Group and the Financial Services Regulatory Group Former Enforcement Counsel with the Office of the Comptroller of the Currency, U.S. Treasury Department, Washington, D.C. Focuses his practice on financial services regulation, enforcement defense, internal investigations, and litigation matters Represents clients before federal law enforcement and regulatory agencies, including the OCC, the CFPB, and HUD, as well as various state authorities across the country Adjunct faculty teaching Regulation of Financial Institutions at Villanova University School of Law Co-Leader, Reed Smith Financial Institutions Enforcement & Investigations Task Force Editor-in-Chief of the Reed Smith Financial Services blog – www.financialregulatoryreport.com National President, Office of the Comptroller of the Currency Alumni Association tnelson@reedsmith.com 609 524 2038 Princeton, NJ 212 549 0236 New York, NY
  53. Kelly L. Bley Associate in the Tax, Benefits & Wealth Planning Group, where she concentrates her practice in the area of employee benefits law Has extensive experience in all aspects of employee benefits law, but her primary focus is on the legal issues associated with tax-qualified plans Has represented domestic and international employers of all sizes, both public and private, with regard to compliance with the Internal Revenue Code and ERISA Has experience working with governmental plans and not-for-profit plan sponsors Routinely represents employers before the Internal Revenue Service and the Department of Labor Regularly counsels employers regarding the complex issues associated with plan administration Former in-house counsel for a bank holding company where she served as the head of the Compensation and Benefits Practice Group for the legal department kbley@reedsmith.com 412 288 7182 Pittsburgh, PA
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