[Federal Register Volume 88, Number 51 (Thursday, March 16, 2023)]
[Proposed Rules]
[Pages 16198-16205]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-05295]


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 Proposed Rules
                                                 Federal Register
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 This section of the FEDERAL REGISTER contains notices to the public of 
 the proposed issuance of rules and regulations. The purpose of these 
 notices is to give interested persons an opportunity to participate in 
 the rule making prior to the adoption of the final rules.
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  Federal Register / Vol. 88, No. 51 / Thursday, March 16, 2023 / 
Proposed Rules  

[[Page 16198]]



BUREAU OF CONSUMER FINANCIAL PROTECTION

12 CFR Part 1026

[Docket No. CFPB-2023-0017]


Regulation Z's Mortgage Loan Originator Rules Review Pursuant to 
the Regulatory Flexibility Act

AGENCY: Bureau of Consumer Financial Protection.

ACTION: Notice of section 610 review and request for public comment.

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SUMMARY: The Consumer Financial Protection Bureau (CFPB or Bureau) is 
conducting a review of Regulation Z's Mortgage Loan Originator Rules 
(Loan Originator Rules) pursuant to section 610 of the Regulatory 
Flexibility Act. Regulation Z, which implements the Truth in Lending 
Act (TILA), among other things, imposes certain requirements on: loan 
originator compensation; qualification of, and registration or 
licensing of, loan originators; compliance procedures for depository 
institutions; mandatory arbitration; and the financing of single 
premium credit insurance. As part of this review, the Bureau is seeking 
comment on the economic impact of the Loan Originator Rules on small 
entities. These comments may assist the Bureau in determining whether 
the Loan Originator Rules should be continued without change or amended 
or rescinded to minimize any significant economic impact of the rules 
upon a substantial number of such small entities, consistent with the 
stated objectives of applicable Federal statutes.

DATES: Comments must be received on or before May 1, 2023.

ADDRESSES: You may submit comments, identified by Docket No. CFPB-2023-
0017, by any of the following methods:
     Federal eRulemaking Portal: https://www.regulations.gov. 
Follow the instructions for submitting comments.
     Email: [email protected]. 
Include Docket No. CFPB-2023-0017 in the subject line of the message.
     Mail/Hand Delivery/Courier: Comment Intake--Loan 
Originator Rules RFA Review, c/o Legal Division Docket Manager, 
Consumer Financial Protection Bureau, 1700 G Street NW, Washington, DC 
20552. Because paper mail in the Washington, DC area and at the Bureau 
is subject to delay, commenters are encouraged to submit comments 
electronically.
    Instructions: The Bureau encourages the early submission of 
comments. All submissions must include the document title and docket 
number. Please note the number of the topic on which you are commenting 
at the top of each response (you do not need to address all topics). In 
general, all comments received will be posted without change to 
www.regulations.gov.
    All submissions in response to this request for information, 
including attachments and other supporting materials, will become part 
of the public record and subject to public disclosure. Proprietary 
information or sensitive personal information, such as account numbers 
or Social Security numbers, or names of other individuals, should not 
be included. Submissions will not be edited to remove any identifying 
or contact information.

FOR FURTHER INFORMATION CONTACT: Ezer Smith, Attorney-Advisor, or 
Lanique Eubanks, Senior Counsel, Office of Regulations, at 202-435-
7700. If you require this document in an alternative electronic format, 
please contact [email protected].

SUPPLEMENTARY INFORMATION: The Regulatory Flexibility Act (RFA) \1\ 
requires each agency to consider the effect on small entities for 
certain rules it promulgates.\2\ Specifically, section 610 of the RFA 
provides that each agency shall publish in the Federal Register a plan 
for the periodic review of the rules issued by the agency which have or 
will have a significant economic impact upon a substantial number of 
small entities.\3\
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    \1\ Public Law 96-354, 94 Stat. 1164 (1980).
    \2\ The terms ``small entity'' and ``rule'' are defined in the 
RFA to include small businesses, small governmental jurisdictions, 
and small organizations. See 5 U.S.C. 601.
    \3\ 5 U.S.C. 610(a). The Bureau published its plan for 
conducting reviews under section 610 of the RFA in the Federal 
Register in 2019. See 84 FR 21732 (May 15, 2019).
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    Section 610 provides that the purpose of the review is to determine 
whether such rules should be continued without change, or should be 
amended or rescinded, consistent with the stated objectives of 
applicable statutes, to minimize any significant economic impact of the 
rules upon a substantial number of such small entities.\4\ As set forth 
in section 610, in each review, agencies must consider several factors:
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    \4\ 5 U.S.C. 610(a).
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    (1) The continued need for the rule;
    (2) The nature of public complaints or comments on the rule;
    (3) The complexity of the rule;
    (4) The extent to which the rule overlaps, duplicates, or conflicts 
with Federal, State, or other rules; and
    (5) The time since the rule was evaluated or the degree to which 
technology, market conditions, or other factors have changed the 
relevant market.\5\
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    \5\ 5 U.S.C. 610(b).
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I. List of Rules for Review

    This section lists and briefly describes the rules that the Bureau 
plans to review in 2023 under the criteria described by section 610 of 
the RFA and pursuant to the Bureau's review plan.\6\
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    \6\ 84 FR 21732 (May 15, 2019).
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A. The Rules

    On July 21, 2010, Congress enacted the Dodd-Frank Wall Street 
Reform and Consumer Protection Act (Dodd-Frank Act),\7\ which amended 
the Truth in Lending Act (TILA) \8\ by, among other things, expanding 
on previous efforts by lawmakers and regulators to strengthen loan 
originator qualification requirements and regulate industry 
compensation practices.\9\ Congress enacted TILA based on findings that 
the informed use of credit resulting from consumers' awareness of the 
cost of credit would enhance economic stability and would strengthen 
competition among consumer credit providers.\10\ One of the purposes of 
TILA is to provide meaningful disclosure of credit terms to enable 
consumers to compare credit terms available in the marketplace more 
readily and avoid the uninformed use of credit.\11\ TILA also contains 
procedural

[[Page 16199]]

and substantive protections for consumers. Section 1403 of the Dodd-
Frank Act created new TILA section 129B(c) for residential mortgage 
loans which, among other things, imposed restrictions on loan 
originator compensation, strengthened loan originator qualification 
requirements, banned certain mandatory arbitration clauses, and 
prohibited the financing of single-premium credit insurance and waivers 
of Federal consumer claims.\12\
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    \7\ Public Law 111-203, 124 Stat. 1376 (2010).
    \8\ 15 U.S.C. 1601 et seq.
    \9\ See 15 U.S.C. 1639b; 12 U.S.C. 5103.
    \10\ 15 U.S.C. 1601(a).
    \11\ Id.
    \12\ Dodd-Frank Act section 1403, 124 Stat. 2139.
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    From September 2010 to October 2013, the Board of Governors of the 
Federal Reserve System (Board) published two rules that were similar to 
new TILA section 129B(c) and the Bureau published three rules 
implementing the TILA amendments.\13\ This document refers to these 
five rules together as ``Regulation Z's Mortgage Loan Originator 
Rules,'' ``the Loan Originator Rules,'' or ``the Rules.''
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    \13\ After enactment of the Dodd-Frank Act, in the preamble to 
the 2010 rule, the Board expressed its intent to implement TILA 
section 129B(c) in a future rulemaking after notice and opportunity 
for further public comment. 75 FR 58509, 58509 (Sept. 24, 2010).
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    Regulation Z's Mortgage Loan Originator Rules, among other things, 
prohibit compensating loan originators based on a term of a mortgage 
transaction or a proxy for a term of a transaction,\14\ prohibit dual 
compensation,\15\ prohibit steering practices that do not benefit a 
consumer,\16\ implement licensing and qualification requirements for 
loan originators,\17\ and prescribe rules for recordkeeping and 
compliance.\18\ The Rules are designed primarily to protect consumers 
by reducing incentives for loan originators to steer consumers into 
loans with particular terms and by ensuring that loan originators are 
adequately qualified.
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    \14\ See 12 CFR 1026.36(d)(1).
    \15\ See 12 CFR 1026.36(d)(2).
    \16\ See 12 CFR 1026.36(e).
    \17\ See 12 CFR 1026.36(f).
    \18\ See 12 CFR 1026.25(c)(2).
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1. The Board's 2010-2011 Rules
    The Board published its first and second rules to regulate certain 
mortgage loan origination practices (collectively, the Board's Rules) 
on September 24, 2010,\19\ and July 20, 2011.\20\ The Board explained 
that it aimed to protect consumers from unfair or abusive lending 
practices that can arise from certain loan originator compensation 
practices, while preserving responsible lending and sustainable home 
ownership.\21\ The Board's Rules amended Regulation Z to include new 
restrictions on loan originator compensation and practices and record 
retention requirements that were similar to many of the Dodd-Frank 
Act's TILA amendments. The Board's Rules primarily applied to closed-
end consumer credit transactions secured by a dwelling.\22\ The Board's 
Rules took effect on April 6, 2011.\23\
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    \19\ 75 FR 58509 (Sept. 24, 2010).
    \20\ 76 FR 43111 (July 20, 2011).
    \21\ 75 FR 58509, 58509 (Sept. 24, 2010).
    \22\ Id. In comment 36-1, the Board's Rules explained the scope 
of coverage of a number of provisions, such as prohibited payments 
to loan originators under 12 CFR 226.36(d) and the prohibition on 
steering 12 CFR 226.36(e) both applying to closed-end consumer 
credit transactions secured by a consumer's principal dwelling and 
secured by first or subordinate liens, and reverse mortgages that 
are not home-equity lines of credit subject to certain restrictions.
    \23\ The Board initially set the compliance date for the 
September 2010 Board Rule as April 1, 2011. See 75 FR 58509 (Sept. 
24, 2010). On March 31, 2011, the United States Court of Appeals for 
the District of Columbia Circuit entered an administrative stay of 
the September 2010 Board Rule, see Per Curiam Order at 1, Nat`l 
Assoc. of Mortg. Brokers v. Fed. Rsrv. Sys., No. 11-5078 (D.C. Cir. 
Mar. 31, 2011), which it then dissolved on April 5, 2011. See Per 
Curiam Order at 1, Nat'l Assoc. of Mortg. Brokers, No. 11-5078 (D.C. 
Cir. Apr. 5, 2011). On July 10, 2011, the Board published final 
revisions to the official staff commentary to the September 2010 
Board Rule. See 76 FR 43111 (July 20, 2011). These revisions, which 
were effective as of July 20, 2011, updated the compliance date for 
the September 2010 Board Rule from April 1, 2011, to April 6, 2011, 
to reflect the issuance and dissolution of the administrative stay.
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    Definition of Loan Originator. Under the Board's Rules, the term 
``loan originator'' was defined as a person who for compensation or 
other monetary gain, or in expectation of compensation or other 
monetary gain, arranges, negotiates, or otherwise obtains an extension 
of consumer credit for another person.\24\ The term ``loan originator'' 
includes an employee of the creditor if the employee meets this 
definition.\25\ The term ``loan originator'' includes the creditor only 
if the creditor does not provide the funds for the transaction at 
consummation out of the creditor's own resources, including drawing on 
a bona fide warehouse line of credit, or out of deposits held by the 
creditor.\26\ For purposes of the Board's Rules, a mortgage broker with 
respect to a particular transaction is any loan originator that is not 
an employee of the creditor.\27\ Therefore, the activities of a ``loan 
originator'' include both mortgage broker entities as well as 
individual mortgage loan officers.
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    \24\ 75 FR 58509, 58533 through 58535 (Sept. 24, 2010) (codified 
at 12 CFR 226.36(a)(1) and comment 36(a)-1.i).
    \25\ Id. at 58534, 58535 (codified at 12 CFR 226.36(a)(1) and 
comment 36(a)-1.i).
    \26\ Id. (codified at 12 CFR 226.36(a)(1) and comment 36(a)-1.i-
ii, -3).
    \27\ Id. (codified at 12 CFR 226.36(a)(2) and comment 36(a)-2).
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    Prohibited Payments to Loan Originators: Compensation Based on 
Transaction Terms or Conditions. The Board's Rules prohibited paying 
compensation, directly or indirectly, to a mortgage broker or any other 
loan originator that was based on a mortgage transaction's terms or 
conditions, other than the amount of credit extended.\28\
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    \28\ 75 FR 58509, 58534 through 58536 (Sept. 24, 2010) (codified 
at 12 CFR 226.36(d)(1) and comment 36(d)(1)-1 to -9).
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    Prohibited Payments to Loan Originators: Payments by Persons other 
than the Consumer. The Board's Rules prohibited any person from paying 
compensation to a loan originator for a particular transaction if the 
consumer pays the loan originator's compensation directly (dual 
compensation).\29\
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    \29\ Id. at 58534, 58536, 58537 (codified at 12 CFR 226.36(d)(2) 
and comment 36(d)(2)-1 to -3).
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    Prohibition on Steering. The Board's Rules prohibited a loan 
originator from steering a consumer to consummate a loan that provides 
the loan originator with greater compensation than other transactions 
the loan originator offered or could have offered to the consumer, 
unless the loan is in the consumer's interest.\30\ The Board's Rules 
also included a safe harbor provision providing that a loan originator 
could satisfy the anti-steering provisions if it presented a consumer 
with loan options that met certain criteria.\31\
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    \30\ Id. at 58534, 58537 (codified at 12 CFR 226.36(e)(1) and 
comment 36(e)(1)-1 to -3).
    \31\ Id. (codified at 12 CFR 226.36(e)(2) and (3) and comments 
36(e)(1)-1 to -3 and 36(e)(2)-1 to -4).
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    Record Retention: Prohibited Payments to Loan Originators. The 
Board's Rules provided that for each transaction subject to the 
provisions concerning prohibited payments to loan originators, a 
creditor must maintain records of the compensation it provided to the 
loan originator for the transaction as well as the compensation 
agreement in effect on the date the interest rate was set for the 
transaction.\32\
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    \32\ Id. at 58534 (codified at comment 25(a)-5).
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2. The Bureau's 2013 Rules
    In 2013, the Bureau issued three rules amending Regulation Z to 
implement the Dodd-Frank Act's amendments to TILA regarding loan 
originator compensation as well as the Dodd-Frank Act's provisions 
prohibiting certain arbitration agreements and the financing of certain 
credit insurance in connection with a mortgage loan. The Bureau issued 
its first rule on February 15, 2013,\33\ the second on May 31, 
2013,\34\ and the third on October 1, 2013 \35\

[[Page 16200]]

(collectively the Bureau's Rules). The Bureau explained in the preamble 
to the first of the Bureau's Rules that the mortgage market crisis 
focused attention on the critical role that loan officers and mortgage 
brokers play in the loan origination process, noting that consumers 
rely heavily on loan officers and mortgage brokers to guide them and 
how, prior to the crisis, training and qualification standards for loan 
originators varied widely and compensation was frequently structured to 
give loan originators strong incentives to steer consumers into more 
expensive loans.\36\ The Bureau further explained that the Dodd-Frank 
Act was expanding on previous efforts by lawmakers and regulators to 
strengthen loan originator qualification requirements and regulate 
industry compensation practices and that the Bureau was issuing new 
rules to implement the Dodd-Frank Act requirements, as well as revising 
and clarifying existing regulations and commentary on loan originator 
compensation.\37\
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    \33\ 78 FR 11280 (Feb. 15, 2013).
    \34\ 78 FR 32547 (May 31, 2013).
    \35\ 78 FR 60382 (Oct. 1, 2013).
    \36\ 78 FR 11280, 11280 (Feb. 15, 2013).
    \37\ Id.
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    The Bureau's Rules addressed the following major topics:
    Definition of Loan Originator. The Bureau's Rules expanded upon the 
definition of a ``loan originator'' by outlining a set of activities or 
services that, if done for or in the expectation of compensation or 
gain, makes the person doing such activities or performing such 
services a loan originator, unless otherwise excluded. The term ``loan 
originator'' means a person who, in expectation of direct or indirect 
compensation or other monetary gain or for direct or indirect 
compensation or other monetary gain, performs any of the following 
activities: takes an application; offers, arranges, assists a consumer 
in obtaining or applying to obtain, negotiates, or otherwise obtains or 
makes an extension of consumer credit for another person; or through 
advertising or other means of communication represents to the public 
that such person can or will perform any of these activities.\38\ The 
definition of loan originator includes five specific exclusions, 
including for persons who ``perform[ ] purely administrative or 
clerical tasks'' on behalf of a loan originator and who engage in 
certain seller financing activities.\39\ The term ``loan originator 
organization'' is any loan originator that is not an individual loan 
originator.\40\ Therefore, the term ``loan originator'' includes an 
employee, agent, or contractor of the creditor or loan originator 
organization if the employee, agent, or contractor meets this 
definition.\41\
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    \38\ Id. at 11410, 11414, 11415 (codified at 12 CFR 
1026.36(a)(1)(i) and comment 36(a)-1.i.A).
    \39\ Id. at 11410, 11415, 11416 (codified at 12 CFR 
1026.36(a)(1)(i)(A) through (E) and comments 36(a)-1.ii-v; -4); 78 
FR 60382, 60445 (Oct. 1, 2013) (codified at comment 36(a)(1)(i)(B)-
1).
    \40\ 78 FR 11280, 11410, 11415 (Feb. 15, 2013) (codified at 12 
CFR 1026.36(a)(1)(i) and comment 36(a)-1.i.D).
    \41\ Id. at 11410, 11415 (codified at 12 CFR 1026.36(a)(1)(i) 
and comment 36(a)-1.i.B). In its October 2013 Rule, the Bureau 
further clarified the definition of loan originator to address: (1) 
when employees of a creditor or loan originator in certain 
administrative or clerical staff roles are not considered ``loan 
originators,'' (and not also agents and contractors, as initially 
written in the final rule) and (2) when employees of manufactured 
housing retailers may be classified as ``loan originators.'' 78 FR 
60382, 60441-45 (Oct. 1, 2013) (codified at 12 CFR 1026.36(a)(1)(i) 
and comments 36(a)-1, -4, -5, and 36(a)(1)(i)(B)-1).
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    Prohibited Payments to Loan Originators: Payments Based on a Term 
of a Transaction. The Bureau's Rules clarified and revised Regulation Z 
to prevent evasion of the prohibition on compensation based on a term 
of a transaction adopted in the Board's Rules. For example, the 
Bureau's Rules expressly prohibited compensation based in whole or in 
part on a factor that is a ``proxy'' for a term of a transaction.\42\ 
In addition, to prevent incentives to upcharge consumers on their 
loans, the Bureau's Rules prohibited loan originator compensation based 
upon the profitability of a transaction or a pool of transactions.\43\ 
However, the Bureau's Rules permitted certain bonuses and retirement 
and profit-sharing plans to be based on the terms of multiple loan 
originators' transactions.\44\
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    \42\ 78 FR 11280, 11411, 11418 through 11423 (Feb. 15, 2013) 
(codified at 12 CFR 1026.36(d)(1) and comment 36(d)(1)-1 to -8, -
10); 78 FR 60382, 60446 through 60449 (Oct. 1, 2013) (codified at 
comment 36(d)(1)-1, -3, -6). The Board's rule previously included 
commentary clarifying that a proxy for a transaction term or 
condition would also violate the rule, but the Board's Rule did not 
define proxy and provided only one example, and stakeholders 
subsequently requested additional clarity from the Bureau on 
proxies. See 78 FR 11280, 11323, 11324 (Feb. 15, 2013). The Bureau's 
Rule included a definition of proxy in the regulatory text and two 
new commentary examples. Under the Bureau's Rules, a factor that is 
not itself a term of a transaction is a proxy for a term of the 
transaction if the factor consistently varies with that term over a 
significant number of transactions, and the loan originator has the 
ability, directly or indirectly, to add, drop, or change the factor 
in originating the transaction. Id. at 11411, 11419 (codified at 12 
CFR 1026.36(d)(1)(i) and comment 36(d)(1)-2.ii).
    \43\ 78 FR 11280, 11411, 11418, 11419 (Feb. 15, 2013) (codified 
at 12 CFR 1026.36(d)(1)(i) and comment 36(d)(1)-1 and -2).
    \44\ Id. at 11411, 11419 through 11423 (codified at 12 CFR 
1026.36(d)(iii) through (iv) and comment 36(d)(1)-3).
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    Payments by Persons other than Consumer: Dual Compensation. The 
Bureau's Rules added an exception to the prohibition on dual 
compensation included in the Board's Rules that allowed mortgage 
brokers to pay their employees or contractors commissions even if the 
consumer paid loan originator compensation to the mortgage broker, as 
long as the commissions are not based on the terms of the loans that 
they originate.\45\
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    \45\ Id. at 11412, 11423, 11424 (codified at 12 CFR 
1026.36(d)(2)(i)(C) and comment 36(d)(2)(i)-1).
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    Steering. The Bureau's Rules made only minimal changes to the 
Board's anti-steering provisions codified in 12 CFR 1026.36(e). The 
Bureau's Rules revised the Board's steering provisions to clarify that 
where two or more loans available to be presented to a consumer by a 
loan originator, for purposes of the safe harbor, have the same total 
dollar amount of discount points, origination points, or origination 
fees, the loan originator must present the loan with the lowest 
interest rate that has the lowest total dollar amount of discount 
points, origination points, or origination fees for which the loan 
originator has a good faith belief that the consumer likely 
qualifies.\46\ The Bureau's Rules also clarified, in the Official 
Interpretations, that the loan with the lowest interest rate for which 
the consumer likely qualifies is the loan with the lowest rate the 
consumer can likely obtain, regardless of how many discount points, 
origination points or origination fees the consumer must pay to obtain 
it.\47\
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    \46\ Id. at 11412, 11424 (codified at 12 CFR 
1026.36(e)(3)(i)(C), read in conjunction with 12 CFR 
1026.36(e)(3)(ii), and comment 36(e)(3)-3).
    \47\ Id. at 11424 (codified at comment 36(e)(3)-3).
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    Loan Originator Qualification and Identification Requirements. The 
Bureau's Rules implemented a Dodd-Frank Act provision that establishes 
certain qualification requirements for loan originators.\48\ The 
Bureau's Rules imposed duties on loan originator organizations to 
ensure that their individual loan originators are licensed or 
registered as applicable under the Secure and Fair Enforcement for 
Mortgage Licensing Act of 2008 (SAFE Act) \49\ and other applicable 
law.\50\ The Bureau's Rules required that loan originator employers 
whose employees are not required to be licensed--including employers 
that are depository institutions and bona fide nonprofits--

[[Page 16201]]

must ensure that their employees meet certain character, fitness, and 
criminal background standards and must provide their employees with 
appropriate training.\51\ The Bureau's Rules also implemented a Dodd-
Frank Act requirement that loan originators provide their unique 
identifiers under the Nationwide Mortgage Licensing System and Registry 
(NMLSR) on loan documents.\52\
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    \48\ Id. at 11412, 11424 through 11426 (codified at 12 CFR 
1026.36(f) and comments 36(f)-1 to -3, 36(f)(1)-1, 36(f)(2)-1, 
36(f)(3)-1, 36(f)(3)(i)-1 to -2, 36(f)(3)(ii)-1 to -3, 
36(f)(3)(ii)(B)-1 to -2, and 36(f)(3)(iii)-1); 78 FR 60382, 60441, 
60442, 60449 (Oct. 1, 2013) (codified at 12 CFR 1026.36(f)(3)(i) 
through (ii) and comments 36(f)(3)(i)-1, -2 and 36(f)(3)(ii)-1, to -
2).
    \49\ 12 U.S.C. 5101 et seq.
    \50\ 78 FR 11280, 11412 (Feb. 15, 2013) (codified at 12 CFR 
1026.36(f)(1)-(2)).
    \51\ Id. at 11412, 11413, 11426 (codified at 12 CFR 
1026.36(f)(3) and comments 36(f)(3)(ii)(B)-1, -2, 36(f)(3)(iii)-1, -
2).
    \52\ Id. at 11413, 11426, 11427 (codified at 12 CFR 1026.36(g) 
and comments 36(g)-1 to -3, 36(g)(1)(ii)-1).
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    Prohibition on Mandatory Arbitration Clauses and Waivers of Certain 
Consumer Rights. The Bureau's Rules implemented Dodd-Frank Act 
restrictions on mandatory arbitration clauses and waivers of Federal 
consumer claims. The Bureau's Rules prohibited both (1) including 
clauses in a contract or other agreement for a consumer credit 
transaction secured by a dwelling that require the consumer to submit 
disputes arising out of that agreement to binding arbitration; \53\ and 
(2) the application or interpretation of provisions of such loans or 
related agreements so as to bar a consumer from bringing a claim in 
court in connection with any alleged violation of Federal law.\54\
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    \53\ Id. at 11413 (codified at 12 CFR 1026.36(h)(1)).
    \54\ Id. (codified at 12 CFR 1026.36(h)(2)).
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    Prohibition on Financing Single-Premium Credit Insurance. The 
Bureau's Rules prohibited financing any premiums or fees for credit 
insurance (such as credit life insurance) in connection with a consumer 
credit transaction secured by a dwelling (while allowing credit 
insurance to be paid for on a monthly basis).\55\ The Bureau 
subsequently clarified what constitutes financing of such premiums by a 
creditor, when credit insurance premiums are considered to be 
calculated and paid on a monthly basis, and when including the credit 
insurance premium or fee in the amount owed is prohibited.\56\
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    \55\ 78 FR 11280, 11413 (Feb. 15, 2013) (codified at 12 CFR 
1026.36(i)); 78 FR 60382, 60442, 60449 (Oct. 1, 2013) (codified at 
12 CFR 1026.36(i) and comment 36(i)-1).
    \56\ 78 FR 60382, 60383 (Oct. 1, 2013) (codified at 12 CFR 
1026.36(i)(2)(ii) and (iii) and comment 36(i)-1).
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    Other Provisions. The Bureau's Rules also extended existing 
recordkeeping requirements concerning loan originator compensation in 
two ways. First, they required a creditor to maintain records 
sufficient to evidence all compensation it pays to a loan originator 
and the compensation agreement that governs those payments for three 
years after the date of payment. Second, they required a loan 
originator organization to maintain records sufficient to evidence all 
compensation it receives from a creditor, a consumer, or another 
person; all compensation it pays to any individual loan originator; and 
the compensation agreement that governs each such receipt or payment, 
for three years after the date of each such receipt or payment.\57\ 
Pursuant to the Dodd-Frank Act, the Bureau's Rules implemented the 
requirement for depository institutions, the subsidiaries of such 
institutions, and the employees of such institutions or subsidiaries to 
establish and maintain procedures reasonably designed to assure and 
monitor compliance with the compensation, steering, qualification, and 
identification requirements.\58\ The Bureau's Rules also clarified that 
the required procedures must be ``written'' to promote transparency, 
consistency, and accountability.
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    \57\ 78 FR 11280, 11410, 11413, 11414 (Feb. 15, 2013) (codified 
at 12 CFR 1026.25(c)(2) and comment 25(c)(2)-1 to -2).
    \58\ Id. at 11413 (codified at 12 CFR 1026.36(j)); 78 FR 60382, 
60442 (Oct. 1, 2013) (codified at 12 CFR 1026.36(j)(2)). This 
provision is similar to the registration procedures pursuant to the 
Dodd-Frank Act requirement added by TILA section 129B(b)(2) and a 
final rule promulgated by the Federal prudential regulatory agencies 
for banks, thrifts, and credit unions requiring the institutions the 
Federal prudential regulatory agencies regulate to adopt and follow 
written policies and procedures designed to assure compliance with 
the registration requirements of the SAFE Act. This specific final 
rule was inherited by the Bureau and designated as Regulation G.
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    The prohibition on mandatory arbitration clauses and waivers of 
Federal consumer claims took effect on June 1, 2013.\59\ The remaining 
provisions adopted by the Bureau's 2013 Rules took effect on January 1, 
2014,\60\ with the exception of the ban on financing credit insurance, 
which took effect on January 10, 2014.\61\
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    \59\ 78 FR 11280, 11280 (Feb. 15, 2013).
    \60\ 78 FR 60382, 60383 (Oct. 1, 2013).
    \61\ The February 2013 Bureau Rule initially set a June 1, 2013, 
effective date for the provisions containing the mandatory 
arbitration clause prohibition and credit insurance financing 
prohibition (amendments to 12 CFR 1026.36(h) and (i)) and a January 
10, 2014 effective date for all other provisions. On May 31, 2013, 
the Bureau issued a final rule delaying the effective date for the 
credit insurance financing prohibition from June 1, 2013 to January 
10, 2014. See 78 FR 32547, 32549, 32550 (May 31, 2013). The Bureau 
delayed the effective date of these provisions to permit the Bureau 
to clarify, before the provisions took effect, their applicability 
to transactions other than those in which a lump-sum premium is 
added to the loan amount at closing. The Bureau's October 2013 Rule 
retained the January 10, 2014 effective date for the credit 
insurance financing prohibition (12 CFR 1026.36(i)) but changed the 
effective date for the amendments to 12 CFR 1026.36(a), (b), (d), 
(e), (f), and (j) from January 10, 2014 to January 1, 2014. 78 FR 
60382, 60383 (Oct. 1, 2013).
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    No Prohibition on Consumer Payment of Upfront Points and Fees. 
Section 1403 of the Dodd-Frank Act contains a section that would 
generally have prohibited consumers from paying upfront points or fees 
on transactions in which the loan originator compensation is paid by a 
person other than the consumer (either to the creditor's own employee 
or to a mortgage broker). However, the Dodd-Frank Act also authorizes 
the Bureau to waive or create exemptions from the prohibition on 
upfront points and fees. The Bureau opted to include a complete 
exemption to the prohibition on upfront points and fees in the Bureau's 
Rules, noting that the Bureau needed to examine the impact such a 
prohibition would have on the mortgage market.\62\
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    \62\ 78 FR 11280, 11281 (Feb. 15, 2013) (codified at 12 CFR 
1026.36(d)(2)(ii)).
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B. The Market

    The Bureau monitors the mortgage origination market as part of its 
oversight and enforcement of TILA and Regulation Z, including the 
mortgage origination rules that are the subject of this review, as well 
as other aspects of the regulation applicable to the market and through 
oversight of the SAFE Act and Real Estate Settlement Procedures Act in 
Regulations G, H and X, respectively.
1. Market Structure and Participants
    The mortgage origination market is one of the United States' 
largest consumer financial markets, with an average estimated annual 
origination volume of about 10 million \63\ mortgages

[[Page 16202]]

for $2.2 trillion \64\ over the past 10 years.\65\ The market had been 
growing in recent years by most measures until a sharp slowdown 
occurring in 2022 with the rapid increase in mortgage rates. Market 
volume is driven by interest rates, credit availability, and demand for 
housing. During periods of relatively low interest rates, demand for 
mortgages is generally strong because purchasing power is strong (i.e., 
the monthly cost of a mortgage relative to the loan balance is low). 
When interest rates increase, purchasing power is reduced and therefore 
demand weakens. Conversely, when interest rates decrease, purchasing 
power is increased, driving increased mortgage demand. Decreasing 
interest rates also drive demand for refinances independent from the 
demand for home purchases. This can lead to large spikes in mortgage 
origination demand after large drops in interest rates, as was seen in 
2020 and 2021, with rapid reduction in demand when interest rates 
increase, as was seen in 2022.\66\ The availability of credit also 
affects demand for mortgages. As credit availability is eased, the 
ability to obtain mortgage financing is relaxed, enabling more 
potential purchasers to access mortgage credit, thereby increasing 
demand. Conversely, a tightening in credit availability will restrict 
access to mortgage financing and therefore reduce demand. These effects 
of credit availability in the market were most pronounced in the lead 
up to the Great Recession of 2007-2009, where lax credit underwriting 
standards led to high demand for home purchases even as interest rates 
began to rise. Subsequently, the crash in the value of owned homes and 
the mortgage market led to severe tightening of credit standards and 
dampening demand for home ownership even as interest rates declined.
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    \63\ See CFPB, Data Point: 2021 Mortgage Market Activity and 
Trends (Sept. 19, 2022), https://files.consumerfinance.gov/f/documents/cfpb_data-point-mortgage-market-activity-trends_report_2022-09.pdf (HMDA Datapoint 2021); CFPB, Data Point: 
2018 Mortgage Market Activity and Trends (Aug. 30, 2019), https://files.consumerfinance.gov/f/documents/cfpb_2018-mortgage-market-activity-trends_report.pdf (HMDA Datapoint 2018); and CFPB, Data 
Point: 2017 Mortgage Market Activity and Trends (May 7, 2018), 
https://files.consumerfinance.gov/f/documents/bcfp_hmda_2017-mortgage-market-activity-trends_report.pdf (HMDA Datapoint 2017). 
The Bureau calculates average annual HMDA reportable originations 
based on total annual originations for 2018 to 2021 from Table 1 in 
HMDA Datapoint 2021 and total annual originations for 2011 to 2017 
from Table 1A in HMDA Datapoint 2018. In HMDA Datapoint 2018, the 
Bureau estimated that HMDA reporters originated about 90 percent of 
all originations in the U.S. (see page 11). The Bureau calculates 
average annual total originations by multiplying the average annual 
HMDA reportable originations by 1.11. The Bureau notes that its 2015 
HMDA final rule implemented several reporting changes that took 
affected data collected starting in 2018. For example, the 2015 HMDA 
rule changed reporting of open-end LOCs from optional to mandatory. 
The Bureau does not adjust annual HMDA reportable originations 
across time to account for this change when calculating average 
annual originations.
    \64\ See Fed. Rsrv. Bank of N.Y., Quarterly Report on Household 
Debt and Credit Q3 2022 (Nov. 15, 2022), https://www.newyorkfed.org/medialibrary/interactives/householdcredit/data/xls/hhd_c_report_2022q3.xlsx. The Bureau calculates average annual 
mortgage origination dollar volume by summing total mortgage 
originations across quarters for each year from 2011 to 2021 and 
taking the average over those years (see page 6 data tab in 
spreadsheet).
    \65\ The Bureau notes that the Nationwide Multistate Licensing 
System (NMLS) 2021 Annual Mortgage Report implies a lower annual 
average dollar volume of originations of $1.3 trillion between 2012 
and 2021. See NMLS, 2021 Annual Mortgage Report, https://mortgage.nationwidelicensingsystem.org/about/Reports/2021%20Annual%20Mortgage%20Report.xlsx.
    \66\ See HMDA Datapoint 2021. The Bureau's most recent data 
point article found that the number of closed-end originations 
(excluding reverse mortgages) in 2021 slightly increased by 2.4 
percent from 2020. Whereas the number of originations increased by 
66.8 percent between 2019 to 2020 largely driven by the refinance 
boom that began in 2020. Most of the increase from 2020 to 2021 was 
driven by an increase in the number of home purchase loans while the 
volume of refinance transactions continued to remain elevated.
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    Participation in the market is diverse, ranging from the largest 
banks to small community banks, credit unions, and non-depository 
lending institutions. Participation by large banks has declined over 
the past 10 years as large non-depository creditors emerged as the 
primary mortgage providers. In 2014, 11 of the top 25 creditors were 
depository institutions, while in 2021 only six of the top 25 were 
depository institutions.\67\ In addition to the trend toward mortgage 
lending by non-depository institutions, the market has experienced 
consolidation with respect to the participation of large creditors. In 
2014, the top 25 creditors represented 34 percent of the market, while 
in 2021 the top 25 represented 44 percent.\68\
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    \67\ See Neil Bhutta et al., Fed. Rsrv. Bd., The 2014 Home 
Mortgage Disclosure Act Data, 101 Fed. Res. Bulletin at T.12 (Nov. 
2015), https://www.federalreserve.gov/pubs/bulletin/2015/pdf/2014_HMDA.pdf (HMDA Bulletin 2014); HMDA Datapoint 2021 at T.6A.
    \68\ Id.
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    Most of the Rules apply to institutions that engage in originating 
or extending closed-end, consumer credit transactions secured by a 
dwelling.\69\ Therefore, all small entities that originate or extend 
closed-end consumer credit transactions secured by a dwelling, such as 
depository institutions and non-depository institutions, including 
mortgage brokers, are likely subject to at least some aspects of the 
Rules.
---------------------------------------------------------------------------

    \69\ 12 CFR 1026.36(b).
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    The Bureau estimates the number of small depository institutions 
using Federal Financial Institutions Examination Council (FFIEC) and 
National Credit Union Administration (NCUA) Reports of Condition and 
Income (call reports) data and estimates the number of non-depository 
institutions using the Economic Census. In 2010, prior to the 
implementation of the Board's 2010 Rule, there were 15,146 depository 
institutions (i.e., banks, thrifts, and credit unions).\70\ Of these 
institutions, 11,180 (74 percent) originated mortgages and were subject 
to the subsequent Regulation Z Loan Originator Rules.\71\ According to 
the current Small Business Administration (SBA) threshold of $850 
million or less in total assets,\72\ 14,152 (93 percent) of depository 
institutions were small at the end of 2010. Of these small depository 
institutions, 10,216 (72 percent) were subject to the Rules. The trend 
toward depository institution consolidation (which began prior to 2010) 
has reduced the total number of depository institutions, and the share 
of depository institutions that originate mortgages has increased 
slightly since 2010. As of the end of 2021, 7,876 out of 9,887 (80 
percent) depository institutions and 6,299 out of 8,278 (76 percent) 
small depository institutions were subject to the Rules.\73\
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    \70\ Calculated from FFIEC Call Report data, NCUA Call Report 
data, and Thrift Financial Report data for all quarters of 2010, 
accessed on January 6, 2023.
    \71\ The Bureau classifies a bank or thrift as originating any 
mortgages if the institution reported a positive outstanding balance 
of closed-end loans secured by 1-4 family residential properties on 
its Call Report in any of the prior four quarters. The Bureau 
classifies a credit union as originating mortgages if the 
institution reported a positive total number of real estate loans 
granted year-to-date in the final quarter of the year.
    \72\ 13 CFR 121.201. Depository institutions have North American 
Industry Classification System (NAICS) codes of 522110 (Commercial 
Banking), 522130 (Credit Unions), and 522180 (Savings Institutions 
and Other Depository Credit Intermediation). All three industries 
have size standards of $850 million as of December 19, 2022.
    \73\ Calculated from FFIEC Call Report data and NCUA Call Report 
data for all quarters of 2021, accessed on January 9, 2023.
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    The Bureau relies on data from the 2007 and 2017 Economic Census to 
estimate the number of non-depository institutions, including mortgage 
brokers, that employed loan originators prior to the implementation of 
the Board's 2010 Rule and the number of institutions currently subject 
to the Regulation Z Loan Originator Rules.\74\ In 2007,\75\ there were 
20,625 mortgage brokers, 20,393 of which were small according to the 
SBA's current size standards.\76\ The same year, there were 10,539 non-
depository creditor institutions that originated mortgages, 10,206 of 
which were small.\77\ The Bureau assumes that

[[Page 16203]]

all these non-depository institutions are subject to the Rules. The 
non-depository mortgage industry has also experienced substantial 
consolidation in the last 10 years. In 2017, the number of mortgage 
brokers decreased by 67 percent to 6,809, of which 6,670 were 
small.\78\ Similarly, the number of non-depository creditor 
institutions decreased by 68 percent to 3,289 in 2017, of which 2,904 
were small.\79\
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    \74\ See U.S. Census Bureau, Stats. of U.S. Bus. Data by Enter. 
Receipts Size 2017 (May 2021), https://www.census.gov/data/tables/2017/econ/susb/2017-susb-annual.html (SUSB 2017); U.S. Census 
Bureau, Stats. of U.S. Bus. Data by Enter. Receipts Size 2007 
(2007), https://www.census.gov/data/tables/2007/econ/susb/2007-susb-annual.html (SUSB 2007).
    \75\ The Bureau is aware that a substantial portion of the 
changes from 2007 to 2017 may have occurred prior to the 2010 Board 
Rule due to the severe downturn in the mortgage market at that time. 
The Economic Census is only conducted for years that end in 2 and 7. 
The Bureau does not have access to the necessary data to estimate 
the number of small entities in 2010.
    \76\ The NAICS code for Mortgage Brokers is 522310. As of 
December 19, 2022, the SBA size standard threshold for Mortgage 
Brokers is $15 million in annual average receipts. The Bureau 
calculates the number of firms and small firms using the SUSB 2007.
    \77\ The Bureau measures non-depository creditor mortgage 
originators using NAICS 522292 (Real Estate Credit). As of December 
19, 2022, the SBA size standard threshold for Real Estate Credit 
firms is $47 million in annual average receipts. In the SUSB 2007 
and 2017, the Census provides counts of firms by receipt size 
buckets that do not correspond to all size standards. The Bureau 
calculates the number of small Real Estate Credit firms as the 
number of firms below $45 million in receipts reported in the SUSB 
2007 and SUSB 2017.
    \78\ Calculated from SUSB 2007 and SUSB 2017. See note 76, 
supra.
    \79\ Calculated from SUSB 2007 and SUSB 2017. See note 77, 
supra.
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2. Mortgage Origination Process
    The primary mortgage origination market, which encompasses the 
interaction of the consumer with the loan originator, can be generally 
divided into two types of origination channels--retail and wholesale. 
In a retail transaction, the consumer deals with a loan officer who is 
an individual loan originator employed by the creditor, such as a bank, 
credit union, or non-depository creditor. The creditor may operate a 
network of branches or communicate with consumers through mail, the 
internet, or by phone. The entire origination transaction is conducted 
within the corporate structure of the creditor, and the loan is closed 
using funds supplied by the creditor. Depending on the type of 
creditor, the creditor may hold the loan in portfolio or sell the loan 
to investors on the secondary market, as discussed further below.
    In a wholesale transaction, the consumer deals with an individual 
loan originator that is a mortgage brokerage firm or employed by such a 
mortgage brokerage firm. In essence, the wholesale origination channel 
consists of creditors that utilize independent third parties to perform 
the duties of a loan originator, whereas the retail channel consists of 
creditors that utilize employees to perform such duties. Because, in 
the context of a wholesale transaction, the mortgage broker operates as 
a third party, the mortgage broker seeks offers from many different 
creditors, and then act as a liaison between the consumer and whichever 
creditor ultimately closes the loan. Generally, at closing, the loan is 
consummated by using the creditor's funds, and the mortgage note is 
written in the creditor's name. The creditor may hold the loan in 
portfolio or sell the loan on the secondary market.
    Both retail loan officers and mortgage brokers provide information 
to consumers about different types of loans and advise consumers on 
choosing a loan. Consumers may rely on loan officers and mortgage 
brokers to determine what kind of loan best suits the consumer's needs. 
Loan officers and mortgage brokers also take a consumer's completed 
loan application for submission to the creditor's loan underwriter. The 
application includes the consumer's credit and income information, 
along with information about the home to be used as collateral for 
either a purchase or refinance. Consumers can work with multiple loan 
originators to compare the loan offers that loan originators may obtain 
on their behalf from creditors. The loan originator or creditor may 
request additional information or documents from the consumer to 
support the information in the application and obtain an appraisal of 
the property. After origination, the process for underwriting and loan 
closing generally occurs with the creditor. However, the retail loan 
officer or mortgage broker generally serves as the liaison for the 
consumer throughout the process.
    As stated, after a loan is closed, the mortgage creditor who made 
the loan either through the retail or wholesale origination channel may 
keep the loan in portfolio or sell the loan on the secondary market. To 
accomplish this, the creditor may sell the whole loan to another 
mortgage lender or investor in what is referred to as a correspondent 
sale, or the creditor may place the loan into a security to be sold on 
the secondary market. A purchaser of a correspondent sale loan may also 
place the loan into a security to be sold. In the current marketplace, 
a majority of loans originated are ultimately placed into Mortgage 
Backed Securities (MBSs) for sale in the secondary market. When a 
creditor sells a loan into the secondary market, the creditor is 
exchanging an asset (the loan) that produces regular cash flows 
(principal and interest) for an upfront cash payment from the 
buyer.\80\ The upfront cash payment represents the buyer's present 
valuation of the loan's future cash flows, using assumptions about the 
rate of prepayments due to property sales and refinancings, the rate of 
expected defaults, the rate of return relative to other investments, 
and other factors. Secondary market buyers assume considerable risk in 
determining the price they are willing to pay for a loan. If, for 
example, loans prepay faster than expected or default at higher rates 
than expected, the investor will receive a lower return than expected. 
Conversely, if loans prepay more slowly than expected, or default at 
lower rates than expected, the investor will earn a higher return over 
time than expected.
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    \80\ For simplicity, this discussion assumes that the secondary 
market buyer is a person other than the creditor, such as Fannie 
Mae, Freddie Mac, or another institutional financial entity. In 
practice, some creditors may securitize their own loans and sell the 
securities directly. In this case, the secondary market price is 
determined by the price investors are willing to pay for the 
subsequent securities. This scenario also does not consider various 
risk mitigation techniques, such as risk-sharing counterparties, 
credit risk enhancements, or security derivatives.
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3. Loan Originator Compensation Structure
    Loan originators are typically paid a commission that is a 
percentage of the loan amount. Prior to 2010, it was common for the 
percentage to vary based upon the interest rate of the loan or other 
loan terms: commissions on loans with higher interest rates, or with 
terms such as prepayment penalties, were higher than commission on 
loans with lower interest rates or lack of prepayment penalties (just 
as the premiums paid by the secondary market for loans vary with the 
interest rate or other terms). This was typically called a ``yield 
spread premium.'' \81\ In the wholesale context the mortgage broker 
might keep the entire yield spread premium as a commission, or they 
might provide some of the yield spread premium to the borrower as a 
credit against closing costs.\82\
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    \81\ The term ``yield spread premium'' has been used in 
different contexts in the mortgage industry. Some use the term to 
mean solely a payment from a creditor to a mortgage broker for a 
higher interest rate, while others use the term to mean anytime a 
mortgage is priced at a rate and term that would generate a premium 
upon sale in the secondary market.
    \82\ Both retail loan officers and mortgage brokers received 
compensation in this fashion. Some retail loan officers may also 
have been paid salary, bonuses, or a combination of all.
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    While this system was in place, it was common for loan originator 
commissions to mirror secondary market pricing closely. The ``price'' 
that the creditor offered to its mortgage brokers or made available to 
its loan officers was somewhat lower than the price that the creditor 
expected to receive from the secondary market--the creditor kept the 
difference as corporate revenue. However, the underlying mechanics of 
the secondary market flowed through to the loan originator's 
compensation. The higher the interest rate on the loan or the more in 
upfront charges the consumer paid to the creditor (or both), the 
greater the

[[Page 16204]]

compensation available to the loan originator. This created a situation 
in which the loan originator had a financial incentive to steer 
consumers into loans with higher interest rates or less favorable terms 
or to impose on the consumer additional upfront charges payable to the 
creditor. In a perfectly competitive and transparent market, 
competition would ensure that this incentive would be countered by the 
need to compete with other loan originators to offer attractive loan 
terms to consumers. However, the mortgage origination market is neither 
always perfectly competitive nor always transparent, and consumers (who 
take out a mortgage only a few times in their lives) may be uninformed 
about how prices work and what terms they can expect. While these rules 
and other CFPB rules have improved transparency and helped to foster 
shopping, survey responses of mortgage borrowers continue to show that 
a significant portion of consumers who take out a mortgage for home 
purchase fail to shop prior to application; that is, they seriously 
consider only a single creditor or mortgage broker before choosing 
where to apply.\83\ Moreover, prior to 2010, mortgage brokers were free 
to charge consumers directly for additional origination points or fees, 
which were generally described to the consumer as compensating for the 
time and expense of working with the consumer to submit the loan 
application. This compensation structure was problematic for two 
reasons. First, the loan originator had an incentive to steer borrowers 
into less favorable pricing terms. Second, the consumer may have paid 
origination fees to the loan originator believing that the loan 
originator was working for the borrower, without knowing that the loan 
originator was receiving compensation from the creditor as well.
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    \83\ CFPB, Consumers' Mortgage Shopping Experience (Jan. 2015), 
https://files.consumerfinance.gov/f/201501_cfpb_consumers-mortgage-shopping-experience.pdf, and Fannie Mae, One-Third of Recent 
Homebuyers Still Don't `Shop Around' for Mortgages (Nov. 2015), 
https://files.consumerfinance.gov/f/201501_cfpb_consumers-mortgage-shopping-experience.pdf, and Fannie Mae, One-Third of Recent 
Homebuyers Still Don't `Shop Around' for Mortgages (Nov. 18, 2022), 
https://www.fanniemae.com/research-and-insights/perspectives/homebuyers-shop-around-mortgages.
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    In recent years, compensation structures have changed to reduce, if 
not eliminate, most problematic incentives. This has been due to 
several factors: (1) the restrictions on loan originator compensation 
imposed under the Board's Rules, which took effect in 2010; (2) the 
enactment of TILA section 129B(c) through the Dodd-Frank Act, which 
largely codified those restrictions in 2010; and (3) amendments to 
Regulation Z by the CFPB in 2013. Today, loan originator compensation 
is primarily determined as a percentage of the loan amount being 
originated as specifically permitted by TILA. Typical compensation 
structures might also include adjustments for the number of 
originations in a certain time period.\84\
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    \84\ Regulation Z's Mortgage Loan Originator Rules outline 
permissible methods of compensation as: (1) loan originator's 
overall dollar volume (i.e., total dollar amount of credit extended 
or total number of transactions originated), delivered to the 
creditor; (2) long-term performance of the originator's loans; (3) 
an hourly rate of pay to compensate the originator for the actual 
number of hours worked; (4) whether the consumer is an existing 
customer of the creditor or a new customer; (5) a payment that is 
fixed in advance for every loan the originator arranges for the 
creditor; (6) the percentage of applications submitted by the loan 
originator to the creditor that results in consummated transactions; 
and (7) the quality of the loan originator's loan files (e.g., 
accuracy and completeness of the loan documentation) submitted to 
the creditor. Comment 36(d)(1)-2.i.
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C. Bureau Resources and Analysis

    Since issuing Regulation Z's Mortgage Loan Originator Rules, the 
Bureau has published numerous reports and other materials on the 
mortgage origination market. In 2018, the Bureau issued its first 
annual series of data point articles describing mortgage market 
activity based on data reported under the Home Mortgage Disclosure Act 
(HMDA).\85\ The annual data point article typically covers mortgage 
applications and originations, mortgage outcomes by demographic groups 
and loan types, monthly mortgage trends and activities, and information 
on the lending institutions that reported lending activities under 
HMDA. The Bureau has also released several articles concerning the 
mortgage origination market. These articles have covered various 
issues, such as consumer finance in rural Appalachia, first-time 
homebuyers, types of changes that occur during the mortgage origination 
process, profiles of older adults living in mobile homes, manufactured 
housing finance, and Asian American and Pacific Islanders in the 
Mortgage Market.\86\
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    \85\ CFPB, Data Point: 2017 Mortgage Market Activity and Trends 
(May 7, 2018), https://files.consumerfinance.gov/f/documents/bcfp_hmda_2017-mortgage-market-activity-trends_report.pdf. HMDA data 
are used to assist in determining whether financial institutions are 
serving the housing credit needs of their local communities; 
facilitate public entities' distribution of funds to local 
communities to attract private investment; and help identify 
possible discriminatory lending patterns and enforce 
antidiscrimination statutes.
    \86\ CFPB, Consumer Finances in Rural Appalachia: Data Point 
(Sept. 2022), https://files.consumerfinance.gov/f/documents/cfpb_consumer-finances-in-rural-appalachia_report_2022-09.pdf; CFPB, 
Market Snapshot: First-time Homebuyers (Mar. 2020), https://files.consumerfinance.gov/f/documents/cfpb_market-snapshot-first-time-homebuyers_report.pdf; CFPB, How Mortgages Change Before 
Origination (Oct. 2020), https://files.consumerfinance.gov/f/documents/cfpb_data-point_how-mortgages-change-before-origination.pdf; CFPB, Data Spotlight: Profiles of Older Adults 
Living in Mobile Homes (May 2022), https://www.consumerfinance.gov/consumer-tools/educator-tools/resources-for-older-adults/data-spotlight-profiles-of-older-adults-living-in-mobile-homes/; CFPB, 
Manufactured Housing Finance: New Insights from the Home Mortgage 
Disclosure Act Data (May 2021), https://files.consumerfinance.gov/f/documents/cfpb_manufactured-housing-finance-new-insights-hmda_report_2021-05.pdf; CFPB, Data Point: Asian American and 
Pacific Islanders in the Mortgage Market: Using the 2020 HMDA Data 
(July 2021), https://files.consumerfinance.gov/f/documents/cfpb_aapi-mortgage-market_report_2021-07.pdf.
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    Through its supervisory and enforcement programs, the Bureau 
performs examinations of large banks and certain nonbanks for 
compliance with Federal consumer financial laws and entered into 
consent orders where noncompliance is observed. Since 2015, the Bureau 
has, through its publication of Supervisory Highlights on its 
supervisory program and certain litigation-related documents on its 
enforcement actions, reported noncompliance with aspects of Regulation 
Z's Mortgage Loan Originator Rules involving: (1) compensation based on 
a term of a transaction \87\ where: (a) loan originators received 
compensation based, in part, on the interest rates of the loans they 
closed; \88\ and (b) loan originators were paid differently based on 
product type where the product type contained different terms; \89\ (2) 
failure of a depository institution to establish

[[Page 16205]]

and maintain required written policies and procedures reasonably 
designed to monitor compliance with the requirements concerning 
prohibited payments to loan originators and the prohibitions on 
steering, qualification, and identification; \90\ and (3) failure of a 
loan originator organization to ensure employees engaged in loan 
originator activities are properly licensed and registered in 
accordance with applicable State and Federal requirements.\91\
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    \87\ 12 CFR 1026.36(d)(1)(i).
    \88\ Press Release, CFPB, CFPB Takes Action Against Castle & 
Cooke For Steering Consumers Into Costlier Mortgages (Nov. 7, 2013), 
https://www.consumerfinance.gov/about-us/newsroom/cfpb-takes-action-against-castle-cooke-for-steering-consumers-into-costlier-mortgages/
; Press Release, CFPB, CFPB Takes Action Against Franklin Loan 
Corporation for Steering Consumers into Costlier Mortgages (Nov. 3, 
2014), https://www.consumerfinance.gov/about-us/newsroom/cfpb-takes-action-against-franklin-loan-corporation-for-steering-consumers-into-costlier-mortgages/; Press Release, CFPB, CFPB Orders RPM 
Mortgage to Pay $19 Million for Steering Consumers Into Costlier 
Mortgages (June 5, 2015), https://www.consumerfinance.gov/about-us/newsroom/cfpb-orders-rpm-mortgage-to-pay-19-million-for-steering-consumers-into-costlier-mortgages/; Press Release, CFPB, CFPB Takes 
Action Against Guarantee Mortgage For Loan Originator Compensation 
Violations (June 5, 2015), https://www.consumerfinance.gov/about-us/newsroom/cfpb-takes-action-against-guarantee-mortgage-for-loan-originator-compensation-violations/.
    \89\ CFPB, Supervisory Highlights, Issue 24, Summer 2021 (June 
2021), https://files.consumerfinance.gov/f/documents/cfpb_supervisory-highlights_issue-24_2021-06.pdf; CFPB, Supervisory 
Highlights, Issue 26, Spring 2022 (May 2022), https://files.consumerfinance.gov/f/documents/cfpb_supervisory-highlights_issue-26_2022-04.pdf.
    \90\ 12 CFR 1026.36(j); CFPB, Supervisory Highlights, Issue 8, 
Summer 2015 (June 2015), https://files.consumerfinance.gov/f/201506_cfpb_supervisory-highlights.pdf.
    \91\ 12 CFR 1026.36(f); CFPB, Supervisory Highlights, Issue 9, 
Fall 2015 (Oct. 2015), https://files.consumerfinance.gov/f/201510_cfpb_supervisory-highlights.pdf; CFPB, Supervisory 
Highlights, Issue 13, Fall 2016 (Oct. 2016), https://files.consumerfinance.gov/f/documents/Supervisory_Highlights_Issue_13__Final_10.31.16.pdf; Press Release, 
CFPB, Consumer Financial Protection Bureau Sues 1st Alliance 
Lending, LLC and Its Principals for Alleged Unlawful Mortgage 
Lending Practices (Jan. 15, 2021), https://www.consumerfinance.gov/about-us/newsroom/consumer-financial-protection-bureau-sues-1st-alliance-lending-llc-and-its-principals-for-alleged-unlawful-mortgage-lending-practices/.
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D. Previous Input to the Bureau

    The Bureau has received feedback on Regulation Z's Mortgage Loan 
Originator Rules through a variety of forums since the Rules were 
adopted. For example, in 2018, the Bureau published a Request for 
Information (RFI) on whether, consistent with its statutory authority 
to prescribe rules pursuant to the Federal consumer financial laws, the 
Bureau should amend the regulations or exercise the rulemaking 
authorities that it inherited from certain other Federal agencies.\92\ 
Approximately 29 of the comments submitted in response to the RFI 
addressed Regulation Z's Mortgage Loan Originator Rules. Commenters 
included trade, consumer advocacy, industry, and other groups. The 
Bureau has also received a rulemaking petition seeking certain 
revisions to the Rules and other Bureau regulations related to mortgage 
origination practices.\93\
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    \92\ 83 FR 12881 (Mar. 26, 2018).
    \93\ CFPB, Petition for Rulemaking--William Kidwell Amend 
Existing Mortgage Regulation, Docket ID CFPB-2022-0027-0001, https://www.regulations.gov/document/CFPB-2022-0027-0001.
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    From these and other sources, stakeholders have provided feedback 
to the Bureau on many aspects of Regulation Z's Mortgage Loan 
Originator Rules. Some of the topics mentioned were: (1) whether to 
permit different loan originator compensation for originating State 
housing finance authority loans as compared to other loans; (2) whether 
to permit creditors to decrease a loan originator's compensation due to 
the loan originator's error or to match competition; and (3) how the 
Rule provisions apply to loans originated by mortgage brokers and 
creditors differently. The Bureau also has received feedback that 
Regulation Z's Mortgage Loan Originator Rules provide important 
consumer protections that have provided benefits to consumers and the 
market.
    The Bureau's experience suggests there is little overlap, 
duplication, or conflict between Regulation Z's Mortgage Loan 
Originator Rules and Federal, State, or other rules.

II. Request for Comment

    Consistent with the section 610 review plan, the Bureau asks the 
public to comment on the impact of Regulation Z's Mortgage Loan 
Originator Rules on small entities \94\ by reviewing the following 
factors:
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    \94\ For purposes of reviewing the questions for comment, 
consult the following list of regulatory provisions generally 
comprising Regulation Z's Mortgage Loan Originator Rules: 12 CFR 
1026.25(c)(2), 1026.36(a) and (b), (d) through (j) and accompanying 
sections in Supplement I to part 1026 of the Official 
Interpretations.
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    (1) The continued need for the Rules based on the stated objectives 
of applicable statutes and the Rules;
    (2) The complexity of the Rules;
    (3) The extent to which the Rules overlap, duplicate or conflict 
with other Federal rules, and, to the extent feasible, with State and 
local governmental rules;
    (4) The degree to which technology, market conditions, or other 
factors have changed the relevant market since the rule was evaluated, 
including:
    a. How the impacts of the Rules as a whole, and of major components 
or provisions of the Rules, may differ by origination channel, product 
type, or other market segment;
    b. The current scale of the economic impacts of the Rules as a 
whole, and of major components or provisions of the Rules, on small 
entities; and
    (5) Other current information relevant to the factors that the 
Bureau considers in completing a section 610 review under the RFA, as 
described above.
    Where possible, please submit detailed comments, data, and other 
information to support any submitted positions.

Rohit Chopra,
Director, Consumer Financial Protection Bureau.
[FR Doc. 2023-05295 Filed 3-15-23; 8:45 am]
BILLING CODE 4810-AM-P