New Loan Originator Requirements Take Effect

Rule applies to most closed-end loans secured by a dwelling.

January 14, 2014
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Prohibition on steering

Under Reg Z, a loan originator may not direct a consumer into a particular transaction secured by a dwelling to receive greater compensation from the creditor than in other transactions the originator offered or could have offered, unless the transaction is in the consumer’s interest. The rule also includes permissible transactions that don’t violate this prohibition on steering.

The rule provides a safe harbor for a loan with the lowest total dollar amount of discount points, origination points, or origination fees.

Loan originator qualification requirements

The amended Reg Z requires MLOs to be “qualified”—licensed or registered (if required) under the Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (SAFE Act) or other state or federal law—and include their Nationwide Mortgage Licensing System & Registry (NMLSR) identification numbers on mortgage loan documents.

In addition, credit unions that employ MLOs must:

Ensure they properly register their loan originators to the extent the SAFE Act requires;

Obtain the following information for each unlicensed loan originator (which would be the case for most credit union MLOs): a state and national criminal background check (from the NMLSR or another source); a credit report from a nationwide consumer reporting agency; and information about any administrative, civil, or criminal findings by any court or government agency.

Determine the MLO’s financial responsibility, character, and general fitness that indicates the MLO will operate honestly, fairly, and efficiently. The credit union must consider whether any of this information indicates dishonesty, a pattern of irresponsible use of credit, or a disregard for financial obligations.

Provide periodic training to unlicensed MLOs that covers federal and state law requirements that apply to the individual MLO’s origination activities.

NMLSR ID on loan documents

The credit union must include the following on mortgage loan documents provided to a consumer or presented to a consumer for signature:

Its name and NMLSR identification number (if applicable); and

The name and NMLSR ID (if applicable) of the individual loan originator with primary responsibility for the origination.

The following loan documents must include this information:

The credit application;

The note or loan contract; and

The security instrument.

Prohibition on mandatory arbitration clauses

Reg Z prohibits the inclusion of clauses requiring a consumer to submit disputes concerning a dwelling-secured loan or HELOC to arbitration.

It also prohibits 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.

Prohibition on financing credit insurance

The regulation also prohibits the financing of any premiums or fees for credit insurance (such as credit life and credit disability insurance) in connection with a consumer credit transaction secured by a dwelling (including a HELOC secured by the consumer’s principal dwelling).

This prohibition doesn’t apply to credit insurance for which premiums or fees are calculated and paid in full on a monthly basis.

In the case of monthly-pay credit insurance, a creditor violates the provision if, upon the close of the monthly period in which the premium or fee is due, the creditor includes the premium or fee in the amount the consumer owes—and thus treats it not as a monthly charge that could be cancelled prior to being due, but as a “debt” that the consumer owes the creditor, which the consumer then would have a right to pay at some later date.

Policies, procedures, and record retention

Credit unions must establish and maintain written policies and procedures reasonably designed to ensure and monitor compliance with the provisions on compensation, steering, qualification, and identification.

Credit unions also must maintain records sufficient to show all compensation they pay to a loan originator, along with the compensation agreement that governs those payments, for three years after the date of payment.

VALERIE Y. MOSS is CUNA’s senior director of compliance analysis. Contact CUNA’s compliance department at

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