A few days ago, the Consumer Financial Protection Bureau said it is looking at some new rules for leveling mortgage costs. One of those would put restrictions on loan origination fees. That was all it took for mortgage originators to spew like Krakatoa.

“Where is common sense and free market system coming into play?,” “These guys in DC don’t really understand our industry,” and “I have one word to say about what has happened to LO compensation and what is be proposed to happen. COMMUNISM,” were just some of the more light-hearted opinions scattered across message boards on the Web.

What set off the eruption was the release of a CFPB document outlining mortgage origination changes the bureau is considering. In a 37-page outline, the consumer-focused super regulator laid out a number of initiatives to fulfill mandates from the Dodd-Frank omnibus financial legislation. It’s going to hold hearings on its suggestions this summer, in hopes of having finalized rules in January.

The very name, Consumer Financial Protection Bureau, is a mouthful of tortured syntax, so maybe it shouldn’t be surprising that when the CFPB puts out pages of proposals, the wording it uses could be clearer. That’s what seems to be happening with its latest opus.

Among other things, the bureau is suggesting a scenario where, if a mortgage loan originator is being paid by the creditor, rather than by the consumer, the consumer be offered terms that include a flat-rate loan origination fee, rather than the more typical fee that varies by size of the mortgage.

Mortgage loan originators bellowed in indignation that their compensation is being seized by the government, that the CFPB is abusing its authority, that it doesn’t understand how the mortgage industry works, and that its moves would prod MLOs to ignore mortgages for both the high end and low end consumer, where processing difficulties tend to occur. Hey, if the fee is going to be flat, then the only work is going to be done on the easiest loans to originate.

More, Not Less

That teeth-gnashing invective, though, seems to have come mostly from folks who haven’t actually read the proposal. There’s a difference between mortgage origination points and mortgage loan originator compensation. On its face, the CFPB proposal doesn’t actually limit compensation based on loan size. It doesn’t even impose much new, where the originator is being paid by the consumer. But it would now allow originators to charge a flat processing fee on lender paid transactions as long as the fee does not vary by loan size. Currently, originators can’t charge that kind of fee at all on lender paid transactions.

That means the CFPB rules proposal actually gives mortgage originators an opportunity to make more money, not less.

That’s one explanation for the lack of hysteria on the part of mortgage industry trade groups. The issue doesn’t come up at all on the websites of the Massachusetts Mortgage Bankers Association, or on its national counterpart, the Mortgage Bankers Association of America. The National Association of Mortgage Brokers posted a message within days of the proposal. But it was a reasoned call for members to actually read the CFPB document – and then to answer the corollary questions that CFPB is asking, in order to see if its suggestions are right or wrong.

NAMB, interestingly, is no longer run by professional staff, but by volunteer members, yet it’s the only organization that weighed in quickly on this new set of rules and regs. That is, it’s the only mortgage group that did so.

The ABA jumped on this set of rules pretty quick, too. But not because of the fees issue. Also included in the proposed CFPB change is a section that would make mortgage loan officers at depository institutions face much of the same licensing scrutiny as MLOs at mortgage banks and brokerages.

As noted by attorney Richard J. Andreano Jr., practice leader at Ballard Spahr’s mortgage banking group, “The CFPB is considering requirements that originators employed by depository institutions must meet character, fitness, and criminal background standards equivalent to the standards for obtaining a license, and that the depository institutions provide appropriate training to the originators commensurate with the size and mortgage lending activity of the institution.”

That’s a big change for banks and bank MLOs. And it addresses one of the mortgage industry’s frequent complaints about disparate treatment of loan originators.

The ABA, of course, thinks this would be going a bit too far. It’s mobilizing to get that portion changed. What’s important is that the rest of the mortgage industry also looks closely at the breadth of what the CFPB is trying to do, and take a reasoned, rational approach to what needs to be altered, what can be adjusted, and what is inevitable. What it doesn’t need to do is have mortgage professionals coming willy-nilly in opposition to something that many of them haven’t even read.

At a time when qualifying for loans is hard for many consumers, and when making a reasonable living is hard for mortgage professionals, everyone needs to keep their head straight and work together to find the best rules that will safeguard the home loan industry while not destroying it. The CFPB wants to hear comment on its proposed rules. If the mortgage industry takes its time to understand what’s really being suggested, and helps the agency see where improvement can be made, we all might get to a good outcome.