Why Haven’t Loan Officers Been Told These Facts?
Unnecessary Loan Estimate Revisions Diminish Customer Satisfaction

Loan Estimate (LE) revisions are necessary when a lender intends to revise loan terms or impose higher costs on a consumer than those disclosed in the early disclosure. Various changed circumstances may necessitate appropriate and unavoidable revisions to the LE. However, Brokers and MLOs should consider establishing a revision threshold policy to avoid pennywise LE and Closing Disclosure (CD) revisions. The CD must be correct at closing. Aside from tolerance requirements, the LE is an estimate and does not need to align with the final charges – only the CD charges imposed on the consumer need to align with the LE. The LE accuracy and good faith are measurable by the CD.

Who cares if the actual fees imposed on the consumer are lower than the LE estimates or if the lender absorbs unexpected settlement charge changes? Shall any stakeholder protest? The applicant might actually be grateful.

Customer relationships, goodwill, and satisfaction are priceless. Why jeopardize that for a bowl of rice? Is it wise to revise the LE to hold onto a few hundred dollars of transaction compensation? As long as the lender is not imposing more onerous terms on the consumer, there is no need for an LE revision.

The Regulation Z MLO compensation constraints do not prohibit the MLO or broker’s absorption of surprise settlement costs. It is labor-intensive and time-consuming to review the LE once. Every time the LE is revised, so might the applicant’s assessment of the MLO.

Don’t assume you have achieved stakeholder satisfaction because no one complains or objects. Many people attempt to avoid conflict.

Unnecessary LE revisions do more than damage the MLO’s credibility and stakeholder engagement. Calculate the revised LE net costs by starting with the time the applicant has to waste evaluating the revisions. Add to that additional communications burdens with the referral partner, the creditor, processing, the disclosure desk, underwriting, closing, and the MLO.

As mentioned, one remedy to reduce unnecessary LE revisions is found in Regulation Z. The compensation rules permit the originator (broker and/or MLO) to absorb surprise settlement costs under certain circumstances.

If there are surprise fees, and the increased charge is not due to an error, the MLO, the Broker, or a combination of the two can agree to absorb surprise costs and avoid hassling the customer and other stakeholders. The LE is intended to inform, not to confuse. Obviously, significant changes to the terms require revisions. But who cares if the CD lists a host of previously undisclosed fees paid by the Broker? The applicant might even thank you!

Furthermore, every revision increases Regulation Z compliance risks. If examined, the lender must prove the necessity of the revision. Creditors must retain records demonstrating compliance with the requirements of § 1026.19(e) (early disclosure and changed circumstance).

For example, if revised disclosures are provided because of a changed circumstance affecting settlement costs, the creditor must be able to show compliance with § 1026.19(e) by documenting the original estimate of the cost at issue, explaining the reason for revision and how it affected settlement costs, showing that the corrected disclosure increased the estimate only to the extent that the reason for revision actually increased the cost, and showing that the timing requirements were satisfied.

Why bother with all that for minor revisions? Can’t the MLO or the lender absorb certain surprise settlement cost increases? Yes, they can.

From the CFPB Small Entity Compliance Guide

If you are a loan originator, you generally may not agree with another person to set your compensation at a certain level and then subsequently lower it in selective cases, such as for consumers who find lower rates with other creditors.

When the creditor offers to extend credit with specified terms and conditions (such as rate and points), the amount of your compensation for that transaction may not change (increase or decrease) based on whether different terms are negotiated.

For example, if a creditor agrees to lower the rate it initially offered, the new offer may not reduce your compensation.

While a creditor may change credit terms or pricing to match a competitor, to avoid triggering high-cost mortgage provisions or for other reasons, you may not change your compensation.

There is one provision that allows you to lower your compensation. When there are unforeseen increases in settlement costs, you may lower your compensation to lower the costs to the consumer within certain limitations.

An increase in a settlement cost at closing is unforeseen if the increase occurs even when the estimate provided to the consumer is consistent with the best information reasonably available to the disclosing party at the time the disclosure was made.

For example, assume a consumer locks in a rate for a purchase-money transaction. A title issue delays the closing by a week and the rate lock expires. The consumer wants to relock the interest rate. Provided the title issue was unforeseen, you (as a loan originator) may decrease your compensation to pay in whole or in part for the rate-lock extension fee.

From the CFPB Supervisory Highlights, November 2022

Regulation Z prohibits compensating mortgage loan originators in an amount that is based on the terms of a transaction or a proxy for the terms of a transaction. This means that a “creditor and a loan originator may not agree to set the loan originator’s compensation at a certain level and then subsequently lower it in selective cases.” The rule, however, permits decreasing a loan originator’s compensation due to unforeseen increases in settlement costs. An increase is unforeseen if it occurs even though the estimate provided to the consumer is consistent with the best information reasonably available to the disclosing person at the time of the estimate. Thus, a loan originator may decrease its compensation “to defray the cost, in whole or part, of an unforeseen increase in an actual settlement cost over an estimated settlement cost disclosed to the consumer pursuant to section 5(c) of RESPA or an unforeseen actual settlement cost not disclosed to the consumer pursuant to section 5(c) of RESPA.”

Examiners found that certain entities provided consumers loan estimates based on fee information provided by loan originators. At closing, the entities provided consumers a lender credit when the actual costs of certain fees exceeded the applicable tolerance thresholds. The entities then reduced the amount of compensation to the loan originator after loan consummation by the amount provided to cure the tolerance violation. Examiners determined, however, that the correct fee amounts were known to the loan originators at the time of the initial disclosures, and that the fee information was incorrect as a result of clerical error. Specifically, in each instance, the settlement service had been performed and the loan originator knew the actual costs of those services. The loan originators, however, entered a cost that was completely unrelated to the actual charges that the loan originator knew had been incurred, resulting in information being entered that was not consistent with the best information reasonably available. Accordingly, the unforeseen increase exception did not apply.

As a result of these findings, the entities are revising their policies and procedures and providing training to ensure loan originator compensation is not reduced based on a term of a transaction.


BEHIND THE SCENES – The New CFPB Government Portal

The CFPB Leverages Another Force Multiplier

The Journal has noted the CFPB’s current attempts to enlist states in prosecuting violators of consumer lending laws. In an audacious new move, the CFPB is encouraging counties and cities to join the fight by leveraging the CFPB consumer complaint database to bolster local enforcement actions against non-compliant financial institutions. The CRAs must be wondering what is next. Perhaps the CFPB will encourage enforcement actions by Suze Orman, Al Sharpton, or the AARP.

In 2022, Director Chopra worked to enhance the effectiveness of the Title X overarching mission to the CFPB in order to protect consumers from unfair, deceptive, or abusive acts or practices. To date, Director Chopra has focused on force multiplication by encouraging and enabling state law enforcement agencies to pursue local enforcement actions for violations of federal law.

However, in a recently announced twist, the CFPB seeks to empower enforcement agencies at the county and municipal levels to bring legal action against local consumer protection ordinance violators. This is in addition to the CFPBs plan to enable local law enforcement to bring complaints in local courts for federal consumer protection laws violations.

From the CFPB


In the aftermath of the 2007-2008 financial crisis, Congress established the Consumer Financial Protection Bureau (CFPB) to regulate consumer financial products and services and protect consumers from unfair, deceptive, or abusive acts or practices. One of the major ways we do this is through collecting, monitoring, and responding to consumer complaints. The complaints we receive help inform our policy and regulatory priorities and enforcement activities. Simply put, the more complaints we receive from a broader demographic and on a broader array of issues, the better informed we are to carry out our core function of protecting consumers and ensuring a fair, transparent, and competitive financial marketplace.

While this data is important to how the CFPB does its work, we have learned that consumer complaints can shine a light on trends and practices that could cause another financial calamity and once again inflict long-term havoc on consumers’ financial wellbeing. We wanted to increase the impact of our complaint data by sharing it with cities and counties so they can increase their efforts to protect consumers at the local level. Engaging with local governments is a win-win for consumers and the CFPB. It helps protect as many consumers as possible from predatory lending, barriers to credit, and other consumer harms.

For our initial engagement, we chose cities and counties that were best positioned to benefit from the CFPB’s complaint data:

    • Local governments with civil or criminal prosecutorial authority to monitor and enforce their own consumer protection laws as well as force-multiply enforcement of federal consumer financial protection laws such as those available under the Consumer Financial Protection Act

    • Local governments with, or that are working to create, financial empowerment offices and developing financial empowerment strategies to improve financial stability for low- and moderate-income households.

After successfully completing a careful review process, the CFPB began onboarding the local governments to the CFPB’s Government Portal. While the public can review complaints through the CFPB’s public-facing Consumer Complaint Database, the Government Portal gives local, state, and federal government agencies access to more granular information about consumers’ complaints and companies’ responses—all through a secure interface. Onboarding to the Government Portal, which requires cities and counties to sign a confidentiality and data access agreement with stringent personal data protection requirements, enables them to:

    • See in real-time what consumers are experiencing in the financial marketplace and how companies are responding
    • Download complaints—including consumer- and company-provided documents—to investigate and enforce rules protecting consumers
    • Compare problems their constituents are facing to other localities and nationwide
    • Filter and export information to ensure targeted analysis by time period, company, geography, and more
    • Securely refer individual complaints to the CFPB
    • Receive the list of companies responding to complaints through CFPB’s process (last year, more than 3,400 companies responded to consumer complaints)

Among other responsibilities, local governments protect their constituents by calling out financial fraudsters and predatory financial products and services. Through the CFPB’s secure Government Portal, local governments can directly submit constituents’ complaints and get responses from the companies. The complaint data can also help local government officials identify what gaps exist, and what fixes are needed – thereby helping them in their mission to foster increased consumer awareness and eventual empowerment. Additionally, cities and counties are best equipped to identify bad actors and enforce their own consumer protection laws to protect consumers.

It is clear this strategy has filled a void. In less than three months, more than a dozen cities and counties have expressed interest in accessing the Government Portal. Some of the participating jurisdictions include:

    • Department of Consumer and Business Affairs – Los Angeles County, CA
    • Office of the Harris County Attorney, Harris County, TX
    • Montgomery County Office of Consumer Protection, Montgomery County, MD
    • Sacramento County District Attorney’s Office, Sacramento, CA
    • Los Angeles Office of the City Attorney, Consumer and Workplace Protection, Los Angeles, CA
    • New York City Department of Consumer and Worker Protection, New York City, NY
    • City of Albuquerque Consumer Protection, Office of Policy, Albuquerque, NM
    • City of Austin, Regulatory Monitor, Office of Telecommunications & Regulatory Affairs, Austin, TX
    • Office of the Columbus City Attorney, Columbus, OH
    • Office of Oakland City Attorney, Oakland, CA

We look forward to working with these local governments and onboarding more cities and counties who want to join the CFPB in protecting consumers from fraudulent and predatory companies and practices that violate consumer finance laws.


Tip of the Week – RESPA Section 8
Give Gifts Regularly and Broadly

Many MLOs have their gift-giving backward. For example, when they receive a referral from a past customer, being well-intentioned and wish g to express gratitude, they send a little thank-you gift to the referring party.

Not only does this exchange of a “thing of value” for a referral expressly violate the RESPA Section 8, but it may cheapen the relationship by monetizing the referral act.

Instead, increase your presence and enjoy more referrals by giving gifts frequently and broadly – before receiving and regardless of receiving any referrals. Why not regiment the process? How about a gift or promotional outreach every 45 days? That equals eight gifts or promotions a year. The gifts can be simple swag items, such as refrigerator magnets, calendars, or pens with your contact information.

In addition to the gifts, the referral promotions should also be consistent and frequent. Consider commemorating birthdays, closing anniversaries, and seasons with solicitous cards.

Each of these commemorating cards should include referral language.
Not the awkward, “Hey, I’m here. Send me a loan!” Something more specific and exacting.

How about something fun like gift cards for ice cream or tacos? Send the gifts separately from referral promotions. Additionally, consider adding gifts for closing anniversaries, birthdays, and holidays. Think MSA with the provider of the gift cards. You promote the gift card provider’s business. They promote your mortgage business.

No Pattern of Gift Giving Tied to Referrals, No Exclusivity in Gift Giving Allowed

The referral promotions should not be tied to a gift. In between the gifts, ask for referrals. For example, on Day 1, gift. On day 46, referral promotion. On day 91, gift. On day 136, referral promotion. On day 181, gift.

Use specific language when asking for referrals. For example:

  • “If you know anyone that is waiting to jump into home buying, please have them call me or, better yet, give them this coupon for $250 off closing costs. Contact me at your earliest convenience.”
  • “Hi, Mr. Customer: Do you know anyone that might want to buy a home in the next three years? Please give them this coupon for free first-time homebuyer education facilitated by me, your local mortgage pro!”
  • “Do you know any first responders, healthcare workers, educators, veterans, or active duty servicemembers that might want to buy a home someday? Please give them this promotional coupon for information on special financing.”

Get some ideas from the LOSJ “Behind the Scenes” series on “Blue Ocean Markets.”
See past LOSJ articles on leveraging this approach here:

From the CFPB

The gifts cannot be dependent on referrals or sent to only those customers that are in a position to send more referrals than other customers.

RESPA Section 8 does not prohibit a lender or other settlement service provider from giving a consumer a gift or an incentive (e.g., a discount, refund of fees, chance to win a prize, etc.) for doing business with that entity. However, RESPA Section 8 prohibits, for example, giving an incentive to a consumer in exchange for the consumer referring other business to that lender or other settlement service provider.

Regulation X allows “normal promotional and educational activities” directed to a referral source if the activities meet two conditions:

The activities are not conditioned on referral of business;


The activities do not involve defraying expenses that otherwise would be incurred by the referral source.