SettlementOne Credit Urges its Clients to Assess the Impact of the Dodd-Frank Loan Officer Comp

March 30, 2011 - PRLog -- SettlementOne Credit Corp. Urges its Clients to Assess the Impact of the Dodd-Frank Loan Officer Compensation Rule on their Internal Policies for Payment of Credit Costs

San Diego, CA (March 30, 2011) – While many in the mortgage lending industry scramble to make necessary employee compensation changes prior to the April 1, 2011 effective date for the Federal Rule on Loan Officer Compensation (the “Rule”), SettlementOne Credit Corporation, a leading provider of data solutions for financial institutions nationwide, is urging its clients to read between the lines to ensure they are meeting all requirements of the Rule.  Although the Rule requires further clarification from the Federal Reserve, it may potentially require changes to internal policies many companies have regarding who pays for credit reports.

The objective of the Rule is to prevent consumer abuse by limiting the manner in which loan officers can be compensated.   Also, the Rule restricts the ability of a loan officer from receiving compensation from the consumer while also receiving compensation from the creditor or another party.  Under the Rule, “compensation” generally means all amounts a loan officer retains or keeps in connection with a loan, and is either permissible or impermissible.  The Rule does not expressly define “compensation”, which adds to the Rule’s ambiguity. However, the Rule does distinguish between the allowable compensation loan officers receive to pay “bona fide” and “reasonable” third party charges (such as title and appraisal fees), and the unallowable compensation that the loan officer retains or keeps by marking up third party charges.  

One popular method of paying for credit reporting expenses adopted by many companies in the mortgage lending industry is to require loan officers to cover such expenses associated with their loans.  Typically, upon or after the loan’s closing, the loan officer is reimbursed for the cost of the credit report.  However, if the loan never closes, the mortgage broker is not liable for the cost of the credit report ordered as it was paid directly by the loan officer.  Initially, it was a common assumption by many in the industry that this payment method was acceptable under the Rule, since the credit report is a third party charge, and is reimbursed to the loan officer without any markup charges.  

However, the Federal Reserve has been inconsistent in its position on whether or not this third party charge is deemed “compensation.”  Verbally, the Fed stated that as long as the third party charge did not contain a markup charge, it would not be considered loan officer compensation.  Conversely, in writing, the Fed stated the following: “…An originator may not pay third party fees out of his or her own pocket.  This amounts to varying the loan originator’s compensation based on the terms or conditions of the loan.  The Commentary accompanying the rule at section 226.36(d)(1)-5 prohibits such action by loan originators.”

Because of the Rule’s ambiguity and inconsistency, SettlementOne is advising its clients and those affected by the Rule to consult their own attorneys. “While the key industry associations clarify the Rule’s requirements from the Federal Reserve directly, we suggest that our mortgage lending customers conduct their own due diligence and seek professional legal advice  to ensure the way they pay for their credit reports does not violate the Rule,” said Will Dillard, President of SettlementOne Credit.

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About SettlementOne Credit Corporation
SettlementOne Credit Corporation’s expansive portfolio of data solutions has empowered lending institutions nationwide for over 10 years. Widely recognized as an industry leader, SettlementOne continues to be a trusted provider because we consistently supply clients with the most innovative, compliant, and cost-effective services including credit reports, income verification, employment verification, SSN verification, AVMs, data analytics, and flood certifications. With the ever-changing compliance requirements from regulatory agencies, SettlementOne combines industry expertise and leading edge technology to help its clients mitigate their risk while improving operational efficiency. For more information, visit www.settlementone.com or call 800-340-2009.