United States
Hong KongSteering explained
Steering means directing a consumer to a transaction the originator will be paid more on, and which is not in the consumer's interest. It is prohibited at 12 CFR 1026.36(e), with a safe harbor for presenting genuine loan options.
A word used loosely in conversation and precisely in the regulation. The exam uses it precisely.
What it is
Directing a consumer to consummate a transaction based on the fact that the originator will receive greater compensation from the creditor than in other available transactions, where that transaction is not in the consumer's interest.
Two limbs. Greater compensation, and not in the consumer's interest. Both are needed.
What it is not
Recommending a product that suits the borrower and happens to pay well is not steering. Nor is declining to offer a product your employer does not carry.
Candidates over-apply the term because it sounds like any recommendation with a conflict in it. The regulation is narrower.
For each type of transaction the consumer expresses interest in, present options including the loan with the lowest interest rate, and the loan with the lowest rate without risky features such as a prepayment penalty, negative amortization or a balloon payment in the first seven years.
How it connects to compensation
Steering and the compensation rules are two halves of one design.
The compensation rule stops pay varying with the loan terms. The steering rule stops the originator directing the consumer toward the better-paying option. Remove one and the other does most of the work; both together close it properly.
Where questions sit
On the second limb, usually. A scenario describes an originator recommending a higher-rate loan that pays more, and asks whether it is steering.
The answer turns on whether it served the consumer. A higher rate with no closing costs can genuinely suit a borrower planning to move within two years, and that is not steering even though it pays more.
Common questions
What is steering in mortgage lending?
Directing a consumer to a transaction that pays the originator more and is not in the consumer's interest, prohibited at 12 CFR 1026.36(e).
Is recommending a well-paying product always steering?
No. It is steering only if the transaction is also not in the consumer's interest.
What is the anti-steering safe harbor?
Presenting, for each type of transaction the consumer is interested in, the lowest interest rate option and the lowest rate option without risky features.
How does steering relate to the compensation rules?
They are two halves of one design: one stops pay varying with terms, the other stops the originator directing the consumer to better-paying loans.
Can a higher-rate loan ever be appropriate?
Yes. A higher rate with no closing costs can suit a borrower planning a short hold, and recommending it is not steering.