How Mortgage Referrals Can Go Wrong
Front-line staff can easily run afoul of CFPB regulations.
If your job responsibilities involve originating mortgages, then you’re likely already familiar with the Consumer Financial Protection Bureau’s (CFPB) mortgage loan originator (MLO) rule.
But the rule casts a wide net beyond the mortgage department. That’s why front-line staff must avoid getting caught in the net when making referrals to MLOs.
This rule went into effect in January. It defines an MLO as any individual who performs loan origination activities for compensation, such as taking an application, offering credit terms, or negotiating credit terms for a closed-end consumer credit transaction secured by a dwelling.
If you make referrals to loan officers engaged in these activities, you must understand the rule. If you’re subject to the rule, you must obtain an NMLS (Nationwide Mortgage Licensing System) identification number, receive an extensive background check, and undergo continuing education.
Credit union staff make the most out of every interaction with members. Many credit unions provide compensation incentives to front-line staff for referring teller or call center interactions to loan specialists, who might then serve members with closed-end mortgages.
But credit unions can easily run afoul of the CFPB’s regulations if they don’t handle these referrals appropriately. Understand the rule so you can avoid a potential minefield for not complying. Your credit union’s policies and procedures about making referrals to MLOs are a good place to start.
If you make referrals, you won’t be subject to the rule so long as you:
♦ Don’t discuss specific loan terms with members;
♦ Don’t refer the member to a particular loan officer based on the member’s financial characteristics.
General referrals to the mortgage department based on a member’s inquiry, or a teller simply asking if the member is interested in such loans, won’t fall under the scope of the rule, either.
But if you refer a member to a loan officer to investigate refinancing a car loan with a home equity loan and you used information from the member’s credit report, the referral would likely fall under the rule.
Credit unions strive to anticipate their members’ lending needs. But in the case of mortgage referrals, you also need to understand the new MLO regulations. Otherwise, your effort to go the extra mile for members could spell trouble.