This story appeared in Bank Digest.
The Federal Reserve Board has issued a Consumer Affairs letter notifying compliance personnel that the Federal Financial Institutions Examination Council has adopted updated examination procedures for Reg. Z—Truth in Lending (12 CFR 226) that are intended to address recent regulation amendments on loan originator compensation practices. Appraisal independence provisions and escrow accounts also are covered by the revised procedures.
The amendments prohibit loan originators from receiving compensation based on the interest rate or other loan terms other than the amount of credit extended, the Federal Reserve Board said. They also prohibit a loan originator that receives compensation directly from the consumer from also receiving compensation from the lender or a third party. Additionally, loan originators are prohibited from directing or “steering” a consumer to accept a mortgage loan that is not in the consumer's interest in order to increase the originator's compensation.