The National Association of Mortgage Brokers (NAMB) on Monday issued a letter of support for the Community Home Lenders of America (CHLA)’s white paper on LO compensation reform.
CHLA‘s white paper, released last week, urged Congress to roll back the loan originator compensation rule to focus on its original purpose — a ban on yield spread premiums (YSP), a predatory practice from the financial crisis of the 2000s in which brokers were paid extra by lenders to place borrowers in loans with higher interest rates.
The proposal follows the Consumer Financial Protection Bureau (CFPB)’s early June submission to the White House Office of Management and Budget (OMB), which includes possible changes to LO compensation and mortgage servicing rules under the Truth in Lending Act.
NAMB‘s letter explained that the trade group views YSP, which is now recognized as lender-paid compensation, as “a legitimate and consumer-beneficial method of structuring mortgage transactions.”
But NAMB also said it opposes the current “rigid” interpretation of loan originator compensation regulations, arguing that the rules hinder consumer choice and restrict flexibility.
“We support a return to the original legislative intent: to eliminate abusive practices, not to overregulate legitimate compensation arrangements within a firm,” the letter read.
“NAMB advocates for a return to common-sense regulatory approaches that distinguish abusive behavior from today’s transparent and consumer-focused lending models,” NAMB President Jim Nabors said.
“Responsible use of lender-paid compensation is an essential tool in offering flexible, borrower-centric financing options. We urge regulators and lawmakers to update and align LO Comp rules with the realities of today’s transparent and competitive mortgage market to protect, rather than hinder, consumers.”
NAMB’s letter recommends legislative support, saying that it “supports legislation to limit LO Comp restrictions to transactions between unrelated entities, preserving lender-paid compensation and exempting a firm’s internal employee or broker compensation structures.”
NAMB also calls for regulatory clarifications from the CFPB.
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