Over the last several months the Consumer Financial Protection Bureau has focused on financial abuse impacting older Americans. In March, the bureau issued a series of voluntary rules to assist institutions with identifying and responding to elder financial abuse. While many of these rules would not directly implicate the loan origination process, there is an inescapable fact lenders should not ignore: the CFPB expects lenders to take affirmative steps to protect borrowers — especially older borrowers — across the board.
Where this may be particularly relevant is in the case of institutions selling both forward and reverse mortgage loans. Such institutions face the realities where certain loans, such as Home Equity Conversion Mortgages, may not be covered by compensation laws, and/or situations where certain loan officers may not do reverse loans, or may do reverse loans exclusively.
Differences in the loan officer compensation structures for forward mortgages, home equity lines of credit, and reverse mortgages — as well as how the lender treats referrals between forward and reverse loan officers — may contain inherent flaws that could expose older borrowers to financial abuse.
Indeed, where the compensation rules and policies create hidden incentives to steer borrowers between reverse and forward loans and do not disclose the compensation differences, there could be circumstances giving rise to claims of deceptive and unfair practices.
This is especially true given that the CFPB clearly expects lenders to take actions to protect elder borrowers — that would certainly include the elimination of policies and practices creating hidden incentives contrary to elder borrowers’ interests.
As such, lenders should carefully consider whether their compensation plans comply both with the Truth in Lending Act’s Regulation Z, and the CFPB’s expectations to protect elder borrowers.