CFPB Post-Crisis Mortgage Loan Pay Rule Eyed for Trump Rollback

Abolishing a longstanding Consumer Financial Protection Bureau rule limiting how mortgage loan originators get paid is on a list of proposals the agency is submitting for White House review.

The five early-stage proposals the CFPB sent to the Office of Information and Regulatory Affairs on Wednesday also touch on mortgage servicing, mortgage closings, and the scope of the agency’s supervisory powers over debt collectors and consumer credit reporting companies.

Only the CFPB’s mortgage loan originator compensation rule, which took effect in January 2014, was marked for rescission, according to an online OIRA dashboard.

The Trump administration previously announced it’s looking to eliminate or rework a slew of rules the CFPB adopted under the 2010 Dodd-Frank Act, including policies dealing with open banking and collecting demographic data on small business borrowers.

Text of the latest proposals isn’t available on OIRA’s website, so it’s unclear what the CFPB has planned. The CFPB didn’t immediately respond to a request for comment.

OIRA is a unit of the Office of Management and Budget, which is led by Russell Vought, who also serves as the CFPB’s acting director.

Post-Crisis Reform

The CFPB’s mortgage loan originator compensation rule bars lenders from being paid based on the interest rate on a loan and other factors that can incentivize lenders to offer unsafe mortgages. It also includes anti-steering provisions intended to prevent originators from pushing borrowers into loans they can’t afford.

The mortgage industry has been pushing for some changes to the compensation rule, but a full rescission without any replacement would cause chaos, said Colgate Selden, a partner at SeldenLindeke LLP who was part of the CFPB team that crafted the agency’s post-financial crisis mortgage rules.

Fully rescinding the rule would force the market to revert to the statutory text of Dodd-Frank, eliminating safe harbors and clarifications the CFPB adopted, Selden said.

It may also result in higher costs for borrowers even as mortgage rates touch 7% and home sales lag, as well as complications for community banks and other mortgage lenders that would have to reconfigure their operations, he said.

“Rates would be even higher,” and many smaller banks charge upfront points and fees to hedge against prepayment risk, Selden said.

The mortgage loan originator pay rule is closely linked to the CFPB’s rule, now an industry standard, providing a safe harbor for lenders issuing “qualified mortgages” that determine borrowers’ ability to repay.

The CFPB on Wednesday also submitted proposals to alter rules requiring disclosure of mortgage servicing rights transfers and error resolution standards, according to OIRA’s website.

Larger Participants

The CFPB is also looking to modify its “larger participant” rules for debt collection and consumer credit reporting markets.

Those rules, adopted under Dodd-Frank, allow the CFPB to subject the largest players in consumer financial services markets to direct agency supervision. The CFPB has established larger participant rules for the student loan servicing, international remittance, and auto loan markets.

Trump in May signed a resolution passed by the GOP-led Congress repealing a Biden-era CFPB larger participant rule for digital payment providers.

The CFPB in previous administrations didn’t typically subject its rules to OIRA review.

But Trump ordered all independent regulators to submit rules for White House review in a February executive order.