COMES NOW the House! (Loan Originator Compensation)

by Jonathan Foxx

According to wire service reports, on March 15, 2011, 31 members of the House Financial Services Committee, chaired by Spencer Bachus (R-AL), sent a letter to the FRB requesting an extension of the implementation date for TILA Loan Originator Compensation rule (Rule). Based on the version circulated by certain news organizations, let's take a look at this missive.

Letter's Arguments - A Salient Selection

This Commentary offers a brief outline of selected arguments against the TILA Loan Originator Compensation rule (Rule). I am leaving out citations, where possible, for ease of reading. This outline is not meant to be comprehensive, authoritative, or relied upon for legal advice. It offers a brief synopsis of the argumentation.

Article Topics:

The Signatories

Intentionally Vague

The Letter provides this broadly worded reason for requesting a delay in the Rule's April 1, 2011 effective date:

There have been complaints among numerous stakeholders that the final regulation is "intentionally vague," that the [FRB] has refused to provide formal guidelines, and the different members of the [FRB] staff have offered differing interpretations of it's meaning.

Impact on Consumers and Mortgage Industry

The Representatives believe that the Rule should be delayed in the interest of "protecting consumers," and ensuring "a fair application to small businesses or companies that may experience significant job loss due to its implementation."

Consequently, the signatories request two actions on the part of the FRB: (1) a delay in implementation of the Rule, and (2) issuance of "proper" written guidance to facilitate compliance by affected entities.

Compensation Practices

An interesting and somewhat unsettling statement is found at the Letter's conclusion. The Representatives state that they "share the [FRB's] goal to improve compensation practices and better align incentives in the mortgage transaction," and "[they] believe that additional time to implement the final rule will help us all attain that goal."

In my view, one of the principal claims of the NAIHP and NAMB lawsuits is the failure of the FRB to "improve compensation practices" or "better align incentives." While admitting the need to rectify these adverse outcomes, the Representatives have not used this unique opportunity to specifically outline how the FRB has not attained those "goal[s]."

Long on Rhetoric, Short on Substance

Perhaps getting all the Representatives to sign this Letter is like trying to get a bunch of cats into a canvas sack. After all, they all have different constituencies and their politics differ. Unlike the Senators' letter, however, the House's Letter is not bi-partisan - all the signatories are Republicans.

To some extent, the Letter states the obvious as reasons for delaying the effective date. The issues cited above for requesting a delay are not new and the Letter provides no new ways to consider the existing issues. Perhaps the Representatives simply want to go on record about how they view the FRB's planned actions.

If that is their intent, perhaps it has been attained through sending the Letter.

But the Letter is long on rhetoric, short on substance.

Last Line of Defense

I have laid out now in a series of Commentaries and Articles why I believe the FRB should delay the Rule or provide clear and unambiguous guidance prior to the effective date.

One basis for a delay or demand for further clarification is grounded, among other things, in statutory support in requiring an impact study necessitated by the Regulatory Flexibility Act (RFA) - the RFA requires an agency that has proposed a rule to prepare and make available for public comment an initial and final regulatory flexibility analysis. To quote the relevant provision: this initial flexibility analysis "shall describe the impact of the proposed rule on small entities." However, the FRB failed to conduct a credible analysis of the impact that the Rule would cause on small entities.

This, plus many other reasons, such as the FRB's failure to explain how a mortgage broker's practice of paying its employees based on the fees paid by a consumer is deceptive or unfair to the consumer.

Or, the FRB's position regarding compensation to affiliates, which under the FRB's interpretation holds that an "affiliate" does not qualify as a third party.

And these are just a few of the many contentious, unresolved, and dispositive issues.

At this point, the NAIHP and NAMB lawsuits probably are the last line of defense.

How those lawsuits fare will likely determine the course of events.

LOADING PDF: If there are any problems, click here to download the file.

Written by:

Jonathan Foxx

Lenders Compliance Group on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at:

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.