Neil Garfinkel is referenced in the following story that appears in Origination News and National Mortgage News.

“Rushing to Meet Start Date”

By Brad Finkelstein

Waiting until the last minute to comply with changes to mortgage origination rules and regulations might be a common occurrence. But many firms, both wholesale and retail, seem to be taking longer to adopt practices which were to be implemented on April 1, when the Federal Reserve Board’s loan officer compensation rule was scheduled to go into effect.

While that date was beyond the deadline for this article and there are two lawsuits and members of Congress seeking to halt the Fed’s actions, all signs are pointing to the regulator holding strong to its position.

Greg Schroeder, the president of Comergence Compliance Monitoring based in Orange, Calif., said the reason for the lag on the part of those on both sides of the origination fence is that there is a whole lot of confusion over the rule and as a result people are uncertain about how to proceed.

That confusion takes two forms: how the Fed will interpret different compensation plans under the rule and whether the rule will actually go into effect given the lawsuits mentioned above.

Neil Garfinkel, an attorney with the New York firm of Abrams Garfinkel Margolis Bergson and counsel for the Empire State Mortgage Bankers Association, noted that if you ask five different people in the mortgage industry how they interpreted the Fed rule, you would get five different answers on what they think the rule said and thus how they were going to implement it.

That makes it “tough as an attorney to opine when you are not really sure. It looks like it says one thing, but then I hear other attorneys, I hear other compliance professionals say they’re going to suggest doing it a little differently,” he said, continuing that he has not seen a rule which had so many questions associated with implementing it.

ESMBA, like other groups, was holding some events to bring its members up to speed. “We’re taking it all in, but April 1 is rapidly approaching,” he said. For those who already compensate their originators on the amount of the loan as opposed to the terms of the loan, they are already in compliance. But for others, compliance will remain a work in progress, Garfinkel said.

Liliana Nigrelli, senior business architect and compliance officer at Wipro Gallagher Solutions based in Franklin, Tenn., said the process for her company starts with reading the regulation and trying to understand it as much as possible. It then starts to develop requirements on how it thinks the law should be interpreted and any system changes required.

It then meets with many of its clients to make sure there is a meeting of the minds regarding the interpretation and that the WGS proposed solution meets their needs. Most of the solutions for the loan originator compensation rule, she said most could be handled through their policies and procedures regarding pricing. But they can also put some security items in place.

Nigrelli said all of the business rules for the system are at the client’s discretion. “So they can interpret it their own way and implement it the way they wish,” she said. The challenge, she continued, is for lenders to make sure all of its vendors are in sync with its approach. For example, with the changes to Truth-in-Lending disclosure, WGS had to work with the document vendors to make sure they were modifying their disclosures in conjunction with its own system changes, she said.

With this rule, Comergence pointed out, both mortgage lenders and mortgage brokers are required to retain loan officer compensation agreements.

And typical for such situations, Garfinkel noted, there has been some coordination among compliance professionals, attorneys and other industry participants. And in the end, that is how some of these agreements will evolve.

Schroeder noted originators have asked Comergence if the compliance firm has a contractual agreement these lenders can use.

It doesn’t, although it does have a tool, CompEditor, which allows lenders and brokers to manage the compensation agreements they have.

These agreements can be modified at certain intervals by the lender or broker/employer. Changes can be made on the agreement stored in the system, Schroeder said, and at the touch of a button, the loan officer gets an e-mail stating he or she has a new agreement that must be signed.

Garfinkel called the execution regarding this rule as “atypical” when compared with other implementations of new rules.

Is the rule crystal clear, but people are not happy about it or is the rule so unclear that they are not sure about how to meet its terms, he asked. Garfinkel believes it is the latter, and a level of clarity is needed.

The interview took place before a March 17 Fed webinar on the topic, but there were those who felt even after the webinar that, with rare exceptions, it did not further clear up the issue. Even after April 1, the implementation of this rule will be an evolving process, Garfinkel said.

Nigrelli feels there has been a lack of direction from investors on what they plan to do which has contributed to the haziness of the implementation process.

In fact, for most compliance issues, it is an issue getting the entire industry on board, she said. “Often lenders will procrastinate as long as possible, either expecting more clarification from the Fed, or hoping that the regulation would be repealed and no longer required,” she said.

Still, this is common for any type of new regulation, Nigrelli said, with people scrambling to comply at the last minute as they develop interpretations.


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