UPDATE #2 4/1/11: Implementation of the rule was delayed at the last minute by an Appellate Court.
UPDATE 3/31/11: The judge ruled against NAMB and NAIHP, and the changes to loan officer compensation will proceed. Appeals are going to be filed.
Quick update on the changes to loan officer compensation:
Yesterday, the National Association of Mortgage Brokers (NAMB) had a hearing seeking a temporary restraining order against the Federal Reserve in order to delay the implementation of the new regulations governing loan officer compensation. According to NAMB, “significant strides” were made in delaying the implementation.
According to NAMB’s press release, “NAMB representatives were given the opportunity to present proof before Judge Howell and provide her with additional information to delay the FRB’s rule on LO compensation and grant an injunction.” The judge is expected to issue a ruling prior to the April 1st implementation date.
We have discussed the changes to loan officer compensation pretty extensively on this blog. The changes are required by Regulation Z of the Truth in Lending Act as well as the Dodd-Frank financial reform act. In brief, the rule says the following:
- Loan officers cannot be compensated by both the borrower and the lender (or some other third party).
- Loan officers cannot be compensated based upon the interest rate or terms of a loan.
- Loan officers cannot “steet” borrowers toward a mortgage product that isn’t in the borrower’s best interest in order to increase their own compensation.
The changes are controversial for a number of reasons. First, many feel that not enough guidance has been provided along with the rule, and that many people will have difficulty complying with it when it is enacted. Additionally, this rule could drive people out of the industry, causing further consolidation in the mortgage industry, and reducing choice for consumers. This reduction in choice could cause an increase in the cost of financing for borrowers. Finally, the rule could favor large lenders at the expense of smaller lenders. Some Senators as well as the House Financial Services Committee have urged the Fed to delay the rule. In addition to NAMB, the National Association of Independent Housing Professionals (NAIHP) has also sued the Fed to stop the implementation of the rule. Two other groups have filed amicus briefs joining these suits.
I will be very surprised if the judge rules for NAMB at this late stage in the game, just two days prior to the onset of the changes. As soon as I hear about the ruling, I will post something in this space.
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jim
March 30, 2011 @ 1:52 pm
Yes it will be suprising to see justice prevail … but the FRB .. consortium of 12 banks have only one interest and that is greedily feed the big bank … this whole issue is a joke and is so blatantly obvious to favor the big 4 .. CHASE, CITIBANK, BofA, WELLS FARGO
Wells is so anxious about it they are starting to implement the rules 1 week before
it is a simple fix… if they want to curtail harm to the consumer then limit the total commission per file to 3.5% .. regardless the mix of how it is paid .. cap it!
FRB does not want it to be simple .. they want to complicate it so the big banks win and get it all while they disguise it that the consumer is going to be protected. Yeah right! .. just like HVCC .. now consumers are paying 30-80% more for appraisals while the big banks that own most of the appraisal management companies make the bucks. Why not make BofA and Wells disclose their ownership of LSI and RELS .. let the consumer know what they are making per appraisal.
it is sad that this bullying is allowed… yeah the judge will rule in favor of the deep pockets..
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jen
April 1, 2011 @ 9:48 am
Capping the total commission could be a sound solution. The integrity of a true Loan Officer is to disclose all fees for the loan transaction and offer a suitable mortgage with regards to the borrowers should he/she qualify for the loan. Success comes from referrals based on that. Justice unfortunately is late for me, the big four were able to undercut all of my closing costs and I could therefore not produce loans to continue to be sponsored with my firm. My hope is for the judge to rule in favor of the consumers.
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Rob
April 3, 2011 @ 11:35 pm
I think this rule is long overdue, Loan officers make way too much for filling out a bunch of paper work and whoring out the market anyway. They are incredibly greedy and driven by the dollar, and will do anything to get someone a loan, any loan, that might be bad for the borrower. It generally is for someone with bad credit and/or no money for a down payment. And after calling 100s of people, and getting shopped and rejected, L.O.s actually develop a sense entitlement to make $2000+ to fill out an application and make a dozen phone calls. This behavior led to the mortgage meltdown. A lot of borrowers should have never been given loans in the first place. But greedy uneducated brokers with no more than a high school diploma (and in many states unlicensed) using the ysp to get people who shouldn’t have a home, a loan, they hurt the unsophisticated consumers and drove property values into the toilet.
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Sonny Haskins Reply:
April 5th, 2011 at 3:44 pm
Rob, you are either completely mis-informed, or work for one of the larger banks! To state that LO’s today are “not licensed” and that “they” led to the mortgage meltdown is ludicrous! First and foremost, LO’s MUST be licensed in the states they do business, and MUSt pass a background check and pass both the Federal and State exams! I dont see this same requirement for those who are so-called loan officers that work for an FDIC bank! They leave their TAco Bell employer and simply pass a background check to be called a loan officer with these large banks!
Also, if I recall, it was the big banks who opened the door for the mortgage meltdown! They not only opened up the door for the sub-prime market, but also had underwritten and funded these loans! Oh, but it is the borker who is at fault… Whatever. YOU are just another misinformed idiot who believes what the Fed’s tell you.
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MARK
April 6, 2011 @ 10:22 am
THE MORTGAGE MELTDOWN WAS CAUSED IN ENTIRETY BY THE VERY PEOPLE WHO ARE RALLYING TO LIMIT PROFIT TO OTHERS FOR THEIR GAIN. THE BANKS AND POLITICIANS; UNDER THE GUISE OF WHAT IS BEST FOR THE CONSUMER ; ARE LOOKING TO LONG TERM LINE THEIR OWN POCKETS. IN ADDITION; WHAT ABOUT THOSE PEOPLE WITH CREDIT CHALLENGES ? BIG BANKS ARE NOT EQUIPPED TO DEAL WITH THEM AND THEY REPRESENT THE MAJORITY OF THE MARKET…..WHY DO WE NOT LIMIT BANKS FROM MAKING RECORD PROFITS AND THE GOVERNMENT PROGRAMS THAT SUPPORT TAX EXEMPT RECORD PROPFITS ON THEIR PART WHILE WE LOAN THE GIANTS MONEY AT RECORD LOW RATES AND THE CONSUMER ONLY SAW A SLIGHT REDUCTION IN RATES TO THEM ???? NOW WE KNOW WHO GOT OBAMA IN THE WHITE HOUSE. IS THIS THE CHANGE THAT YOU ALL WANTED ? WAIT THERE IS MORE !!!!!
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