WTF is the Anti-Steering Loan Options Disclosure?
The Anti-Steering Loan Options Disclosure is required by Regulation Z: Loan Originator Compensation and Steering. Reg Z “prohibits certain practices relating to payments made to compensate mortgage brokers and other loan originators. The goal of the amendments is to protect consumers in the mortgage market from unfair practices involving compensation paid to loan originators.” Regulation Z implemented the Truth in Lending Act (TILA).
The rule does not allow a lender to pay an originator based on the mortgage transaction’s terms or conditions except the loan amount. This means a mortgage originator cannot steer you to a loan that pays her more.
The Consumer Financial Protection Bureau (CFPB) says, “The rules prohibit compensation that varies with the loan terms. A broker or loan officer cannot get paid more if the consumer takes a loan with a higher interest rate, a prepayment penalty, or higher fees. Moreover, the mortgage originator cannot get paid more if, for example, the consumer agrees to buy title insurance from the lender’s affiliate. Previously, loan originators could make more money by getting the consumer to buy these services from the lender, broker, or one of their affiliates.”
The Anti-Steering Loan Options Disclosure is required when a mortgage loan originator is paid by someone other than their employer or the borrower. This includes the lender. For mortgage brokers, when the lender is paying them, it is required.
The point of the anti-steering disclosure is the show there are other options than the one you have selected. It’s intended to provide you with the range of options for you — some rates cost more in closing costs (points) and some cost less in overall closing costs (credits). This is so you are not being directed, or steered, into a loan program that pays the originator the most and not to the loan program that is most suitable, or desirable to you.
It’s important you know there is a range of rates available to you. It’s important you know if there are other loan programs available to you. It’s also important you know if there is a prepayment penalty, negative amortization, interest only payments, a balloon payment within 7 years and other aspects to the loan that will impact your payment.
Let’s look at a sample disclosure.
The disclosure should have your name, and the loan number assigned to you.
It also needs to include the Mortgage Broker company name, license number and address, the Mortgage Originator’s name. The borrower, the broker and the loan originator all need to sign it.
You can see there is a section in the middle where some other options are presented to you, it will often be the top and the bottom of the rate range available on that day. You should ask your mortgage originator what other options are available as well.
The next section is a reminder that this is not a rate lock agreement or loan commitment. Also please know that this disclosure is not the Loan Estimate, nor should be used as such. The purpose of this disclosure is to let you know there are options available to you.
Also, please note the part that states interest rates move constantly if you are not locked. To set a rate and fees is to lock the loan. Once you lock your loan, you will receive an updated Loan Estimate showing the rate is locked and the expiration date of the rate lock.