Hello! We are a non-depository mortgage company that just received our Tennessee mortgage license. We are trying to make sure we understand Chapter 0180-17 - Rules Pertaining to Mortgage Lending, Loan Servicing, and Loan Brokering:

0180-17-.07 Brokerage/Finder Fees
[…]
(2) A brokerage/finder fee of two percent (2%) or less of the principal amount of the residential mortgage loan is considered fair and reasonable. A brokerage/finder fee that is more than two percent (2%) of the principal amount of the loan is presumed unfair and unreasonable and shall be grounds to revoke the license of such licensee, unless such licensee can provide evidence showing that the fee constitutes fair and reasonable compensation, subject to the restrictions in T.C.A. § 47-14-101, et seq.

We have gotten feedback from consultants (who confirmed with state regulators) that this includes everything in Section A of the LE, including discount points.

Just wanted to confirm that I am not missing anything here?

In getting feedback on this, we were told “In the case where you can confirm the institution is DIDMCA exempt, this loan would be exempt from the Brokerage/Finder fee test.” So, that got me to researching DIDMCA. It first seemed like “no”, since it is the “Depository Institutions Deregulation and Monetary Control Act of 1980” and we are a non-depository mortgage company. Are there exemptions that would make non-depository institutions “DIDMCA exempt”?

Still trying to wrap my head around the Tennessee regulations so any education you can give is appreciated.

Can I ask a simple question? Where is your TN legal counsel?

We have these questions out to them as well. I come to this site daily because I have a ton of respect for the knowledge you and the other Gurus have, so I wanted to hear my Compliance community's thoughts on it.

Well, I would first go back to the source of the DIDMCA feedback and ask for specific citations supporting that claim. Where is this exemption found? As far as the 2%, I probably would not agree that it includes voluntary discount points for the buydown of the interest rate, as discount points have a separate definition in § 0180-17-.01 - DEFINITIONS. Plus - a broker does not charge or receive discount points, the lender does.

Thanks for the feedback rlcarey! This is way over my head regarding DIDMCA, but below is the citation we received regarding how we could be exempt.

Also, regarding the the "brokerage fee", the regulation defines this as a broker or lender fee: (1) “Brokerage Fee” means a fee charged by a mortgage loan broker or residential mortgage lender that is paid by or charged to a loan applicant for mortgage loan origination in which no part of the fee is for service rendered by a third party provider. For the purpose of this rule, brokerage fee is synonymous with finder fee."




Federal preemption of state usury limits on first mortgages under DIDMCA applies to any “federally related mortgage loan” as defined in 12 U.S.C. 1735f-5(b) -

(b) … the term ‘‘federally related mortgage loan’’ means any loan which—
(1) is secured by residential real property designed principally for the occupancy of from one to four families; and
(2) (A) is made in whole or in part by any lender the deposits or accounts of which are insured by any agency of the Federal Government, or is made in whole or in part by any lender which is itself regulated by any agency of the Federal Government; or
(B) is made in whole or in part, or insured, guaranteed, supplemented, or assisted in any way, by the Secretary of Housing and Urban Development or any other officer or agency of the Federal Government or under or in connection with a housing or urban development program administered by the Secretary of Housing and Urban Development or a housing or related program administered by any other such officer or agency; or
(C) is eligible for purchase by the Federal National Mortgage Association, the Government National Mortgage Association, or the Federal Home Loan Mortgage Corporation, or from any financial institution from which it could be purchased by the Federal Home Loan Mortgage Corporation; or
(D) is made in whole or in part by any ‘‘creditor’’, as defined in section 1602(f) 1 of title 15, who makes or invests in residential real estate loans aggregating more than $1,000,000 per year.
The term “creditor” is defined in 15 U.S.C. 1602(f) as a person who both (1) regularly extends, whether in connection with loans, sales of property or services, or otherwise, consumer credit which is payable by agreement in more than four installments or for which the payment of a finance charge is or may be required, and (2) is the person to whom the debt arising from the consumer credit transaction is initially payable on the face of the evidence of indebtedness or, if there is no such evidence of indebtedness, by agreement.

I fail to see a connection with the Federal preemption on usury limitations with an allowable broker/finder fee that can be paid by the consumer or the lender. IMHO - If a broker is getting more than 2%, then I can guarantee you that it probably would also be considered a violation of Section 8 of RESPA as collecting an unearned fee. No broker does enough work on the loan file to earn more than 2% of the loan amount.

For the life of me, I am not sure why percentages are even allowed. If I, as a broker, am working on a loan for $100,000 and I get $2,000 for doing it, do I do twice as much work on a $200,000 to earn the $4,000 or multiples thereof? I really have never been able to understand that sort of compensation pricing for brokers.