NCUA Regulatory Alert Addresses Compensating Loan Originators
April 26, 2012
April 26, 2012
The National Credit Union Administration’s (NCUA’s) third regulatory alert of the year, 12-RA-03, addresses what credit unions can and cannot do in terms of compensating loan originators. According to the NCUA, credit unions making closed-end residential mortgage loans will have new flexibility in compensating their originators.
Under the terms of the Dodd-Frank Act, loan originators may not be paid funds that originate from any mortgage transaction. The rule is intended to prevent loan originators from increasing their own compensation by raising the consumers’ loan costs, such as by increasing the interest rate or points.
Prior to the CFPB’s creation, the Federal Reserve Board (FRB) was responsible for interpretation and implementation of Truth in Lending. The FRB’s original interpretation deemed it impermissible to fund mortgage loan originators’ pension plans with earnings derived from closed-end mortgages. But there’s a new sheriff in town. The CFPB now has the authority to interpret and implement Truth in Lending, and it has released informal guidance that softens the FRB’s position.
According to the CFPB, the compensation rules permit employers to contribute to qualified pension (such as 401(k) and employee stock ownership) and profit-sharing plans out of a profit pool derived from loan originators. This guidance is informal at this point and is not in the form of a final rule. The CFPB is expected to release a rule addressing this issue before January 21, 2013.
Debbie Matz, chairman of the NCUA, stated in the regulatory alert that credit unions may now make contributions to qualified plans for loan originators out of a pool of profits derived from loans originated by employees.
She did, however, note that credit unions with discretionary non-qualified pension plans that are tied to profit targets should amend those plans to exclude income from closed-end mortgage loan originations.
“If your credit union has a pension plan that establishes the employer’s contribution amount based on a loan originator’s income, that plan is particularly at risk,” Matz said.
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