Cordray supports ban on mortgage incentives
Ohio Attorney General Richard Cordray has joined 14 other state attorneys general to support elimination of incentives paid to loan officers and mortgage brokers that result in borrowers being placed in loans that are riskier and more expensive than they need to be.
“I strongly support changing the law to end predatory practices like these that fueled the foreclosure crisis and the collapse of the mortgage market,” Attorney General Cordray said. “Paying incentives to place customers in riskier loans is rewarding the behavior that is ruining so many communities. What’s even more tragic is that without this type of steering, some consumers may have been able to get more affordable loans and avoid foreclosure entirely.”
Currently, mortgage brokers and loan officers can receive additional compensation based on the type of loan they originate. For instance, a broker could receive extra compensation for originating an adjustable rate mortgage (ARM) instead of fixed-rate mortgage. Brokers also can receive an incentive called a yield spread premium, or YSP, for placing consumers into loans with higher rates than the consumer could otherwise have qualified for. These types of compensation give brokers and loan officers financial incentives to originate loans that consumers cannot afford.
Cordray joined the attorneys general of Arizona, Connecticut, Illinois, Iowa, Maryland, Massachusetts, Minnesota, Missouri, New Hampshire, North Carolina, Rhode Island, Tennessee, Vermont and West Virginia in commenting to the Federal Reserve about changes to the federal Truth in Lending Act (TILA)’s Regulation Z. The comment period closes today.
Cordray noted that while the proposed changes would eliminate certain types of compensation, brokers and loan officers could still receive compensation based on other factors, such as by a flat fee, by the volume of loans originated or by the time spent originating the loan. Cordray recommended that the Federal Reserve encourage compensation based on long-term loan performance.
“Right now, brokers and lenders often stand to profit from originating high-cost loans that consumers can’t actually afford,” Cordray said. “Ultimately, we want to provide incentives for originating loans that perform well in the long run. These proposed changes are an important step toward that goal.”
The comment period about the proposed changes opened in August. The Federal Reserve must now determine whether to move ahead with the changes. To read the comments, click here or visit www.OhioAttorneyGeneral.gov/RegulationZCommentLetter.