CFPB must strike balance between LO comp reform and consumer protection

Scarpero has seen the other side of the LO comp issue firsthand. He started his career at a bank as a closer. He often had to take loans to close them, where they were being charged excessive compensation rates.

“I think the flip side of that too, because I did closing years ago,” he said. “The company would do these crazy loans in West Dayton, in the worst neighborhoods. I’m presenting paperwork to them. And I knew the deal was bad, but as closer, I couldn’t say anything, because I’m paid for by the lender. They would ask if it was a good deal, and my only reply was, ‘Well, you’ve got three days to change your mind,’ because I’m representing the lender. I’m not there to consult them.”

The need for reform

His experience as a closer at the beginning of his career showed Scarpero why some limits needed to be in place. However, he also thinks it is time to discuss LO comp reform.

“I understand why LO comp came out, because you’re trying to prevent that kind of stuff,” he said. “But at the same time, if you’re not serving customers because you’re sitting there with minimum loan sizes, then that’s a problem too. I’m glad to see it addressed, and I’m certainly open to it.”

Scarpero compared the potential changes to the way appraisal rules changed. He said at one point, banks would shop around to appraisers to make sure they would get the value they needed to get a loan completed. Then, rules were put into place in the aftermath of the 2008 housing crisis to keep that from happening. That’s when Appraisal Management Companies (AMCs) came to the forefront.