The Consumer Financial Protection Bureau has released its latest set of Oversight Highlights and reminded us that “unforeseen” means “unforeseen”.
CFPB regulations generally prohibit reducing a loan originator’s compensation in selective cases. While lower compensation sounds good to consumers, the CFPB says allowing loan originators to reduce their compensation in selective cases is actually harmful at the macro level, as it encourages them to offer most consumer loans at higher prices. However, the CFPB has determined that allowing compensation concessions to cover unforeseen increases in closing costs does not raise concerns about improper inducements, as long as such instances are truly unforeseen and are documented for reviewers.
According to the Supervisory Highlights, the CFPB found that some loan originators received lower compensation to cover closing costs that were not unexpected. Agency reviewers found that loan originators disclosed to consumers some costs that were known to be inaccurate or resulted from clerical errors. These amounts were initially covered by the credits of the lenders, but then recovered on the remuneration of the originators of loans. While it may seem reasonable to make a lender pay for its errors, the CFPB concluded that the errors did not fall within the “unforeseen” exception. As a result, the loan originator must receive their standard remuneration and the lender must generally absorb these costs.
The only concrete example of an “unexpected” cost that the CFPB provided is a rate lock extension fee when closing is delayed due to an unforeseen title issue. The CFPB further explained that the “unforeseen” exception does not apply to events that are within the control of the loan originator or where the loan originator knows or is reasonably expected to know in advance the amount closing costs. If a loan originator makes repeated price concessions for the same categories of closing costs in multiple transactions, the CFPB continues to insist that the lender, not the loan originator, pay the price.