The Consumer Financial Protection Bureau (“CFPB”) has issued a proposed rule for public comment that would amend Regulation Z (Truth in Lending) to implement provisions of the Dodd-Frank Act. The amendments would include, among other things, new rules governing the participation of mortgage loan originators (“MLOs”) in employer profit-sharing plans. Under Regulation Z, MLO compensation cannot be based on mortgage loan terms and conditions, or “proxies” for such terms and conditions. In a prior blog, we discussed the issue of whether, under Regulation Z, MLO participation in a profit-sharing compensation plan could be prohibited under the rationale that profitability is a “proxy” for mortgage loan interest rate (a loan term).
The proposed rule provides additional guidance with examples of when factors used to determine compensation could serve as “proxies” for loan terms and conditions. In addition, the proposed rules states that employer profit-based contributions to 401(k) plans, employee stock plans, and other “qualified” plans would be generally permissible, provided that contributions are not based on the terms of an MLO’s individual transactions. Bonuses and contributions to non-qualified profit-sharing plans from general profits would be permitted provided that (i) contributions are not based on the terms of an MLO’s individual transactions, and (ii) in the prior tax year, not more than a certain percentage of the person’s or business unit’s revenues are generated from the person’s mortgage business. The CFPB is seeking comment on whether the threshold should be 25% or 50%. Bonuses and contributions to non-qualified profit-sharing plans from general profits would also be permitted if an MLO closed five or fewer mortgage transactions during the 12-month period preceding the employer’s determination to make a payment. Public comments on the proposed rule (which may be made online) are due by October 16, 2012.
Friday, April 12, 2013 at 02:48PM 