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Steering

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  • #3793
    wp27
    Participant

    Our consumer loan officers are paid salaries and do not get commissions. They offer in house mortgage loans, but we are also a broker for secondary market so they offer secondary market loans through 2 creditors. They get compensated the same no matter what and, typically, customers always choose secondary market loans when they qualify. The bank gets compensated differently, though, depending on which type of loan is originated. Do we need to use the loan options form? I know the form is used to list options for which the customer would likely qualify, so if they don’t qualify for secondary market, I can see why we wouldn’t use this form, but if they do qaulify for secondary market do we need to present an in house loan and a loan from each creditor?

    #3798
    rcooper
    Keymaster

    The requirement to ensure compliance with the prohibition on steering is to provide options for each type of transaction for which the applicant expressed an interest (types of transactions include: fixed rate, adjustable rate and reverse mortgage loans). Also take a look at the commentary below:

    Official Interpretations to 12 CFR 1026.36(e)(1)(2)(ii):
    …A loan originator who is an employee of the creditor on a transaction may not obtain compensation that is based on the transaction’s terms or conditions pursuant to §1026.36(d)(1), and compliance with that provision by such a loan originator also satisfies the requirements of §1026.36(e)(1) for that transaction with the creditor. However, if a creditor’s employee acts as a broker by forwarding a consumer’s application to a creditor other than the loan originator’s employer, such as when the employer does not offer any loan products for which the consumer would qualify, the loan originator is not an employee of the creditor in that transaction and is subject to §1026.36(e)(1) if the originator is compensated for arranging the loan with the other creditor.

    If you believe the applicant will not qualify for secondary market (make sure you retain what your belief is founded on) and the only options are in-house loans (and you comply with 1026.36(d)(1) which also shows compliance with 1026.36(e) according to the commentary above) then I agree with your interpretation that the form wouldn’t technically be required to show compliance. However, in my opinion, procedures are often more sound and easier to understand when you apply them across the board rather than leaving it to the discretion of each individual employee.

    To answer your last question, “if the borrower qualifies for secondary market loans, should you include an in-house loan on the options sheet?”, it depends. If you offer loans in-house that qualify for the type of transaction for which the applicant expressed an interest and it satisfies one of the option requirements (lowest rate, lowest rate with no junk, and the loan with the lowest total dollar amount of discount points, origination points or origination) you should. You may include an in-house option even if it doesn’t meet one of these requirements, but remember if this results in more than three options, remember to highlight loan options that meet the option requirements. And also remember that presenting the consumer more than four options will not likely help the consumer make a decision.

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