Blog

Final Rules Issued on Originator Compensation. Mortgage Industry Needs Some Simplification
On August 26, 2009, the Board published a proposed rule to prohibit certain compensation payments to loan originators and steering consumers to loans not in their interest (74 FR 43232). In response to this proposal the Board received approximately 6,000 comments from creditors, mortgage brokers, trade associations,rn consumer groups, federal agencies, state regulators and attorneys general, individual consumers and members of Congress.</p
Today the Federal Reserve Board announced the final rule on loan originator compensation practices. The final rules are effective April 1, 2011, to provide lenders and originators time to develop new business models, implement necessary changes to their systems, and train personnel. </p
The final rules, which apply to closed-end loans secured by a consumer’s dwelling, will:</p<ul
</li
</li</ul
The final rule applies to loan originators, which are defined to include mortgage brokers, including mortgage broker companies that closern loans in their own names in table-funded transactions, and employees ofrn creditors that originate loans (e.g., loan officers). Thus, creditors are excluded from the definition of a loan originator when they do not use table funding, whether they are a depository institution or a non-depository mortgage company, but employees of such entities are loanrn originators.</p
The rule requires creditors and other persons who compensate loan originators to retain records for at least two years after a mortgage transaction is consummated.</p
Originator compensation can't vary based on terms of the loan like a higher ARM margin but loan level risk-based price adjusters are still in play. This prohibition does not apply to payments that consumers make directly to a loan originator (origination fee). However, if the loan originator receives payments directly from the consumer, the loan originator is prohibited from also receiving compensation from any other party in connection with that transaction. To me that says a loan originator can earn rebate (yield spread) as long as they aren't being paid and origination fee.</p
Plain and Simple: I am I missing something or is this pretty much the same way business is done right now? </p
SAFE HARBOR FOR ORIGINATORS: A loan originator is deemed to comply with the anti-steering prohibition if the consumer is presented with loan offers for each type of transaction in which the consumer expresses an interest (that is, a fixed rate loan, adjustable rate loan, or a reverse mortgage); and the loan options presented to the consumer include the following:</p<ol
IMPORTANT: While many of the provisions announced in the final rules are similar to the proposed compensation rules outlined in the Dodd-Frank Wall Street Reform and Consumer Protection Act, certain practices concerning loan originator compensation were not covered by the final rules released today. </p
Among other provisions, Section 1403 of the Reform Act (PAGE 781) creates new TILA Section 129B(c). The Board intends to implement Section 129B(c) in a future rulemaking after notice and opportunity for further public comment. Here are a few discrepancies…</p<ul
MBA's recap of the Wall Street Reform legislation. </p
The Obama Administration is set to begin serious conversation on Housing Finance Reform. With our future still up in the air, how can the industry be expected to interpret and implement these new reforms? </p
Complicating the issue further are all the different definitions of fees and a lack of transparency between the origination channels. No one does business the same way these days… </p
Net branchers and retail shops often times have a larger mark-up in their loan pricing while quotes offered by brokers and smaller independent bankers are more reflective of the competitiveness of the market. This can lead a consumer to believe one originator is “ripping them off” when in reality the “creditor” who built the pricing is withholding their own margins.</p
There is no standardization of terminology used to describe fees. Some lenders charge more third party closing costs than others and generally don't call them the same thing. This can lead a consumer to wonder what fees are acceptable when one lender is charging an application fee while another is charging an underwriting fee.</p
Brokers have to show “yield spread” on the HUD while bankers don't share their “rebate” with the consumer…yet yield spread is the exact same thing as rebate! All loan pricing is built on the same two pillars: a base price (plus delivery incentives) and servicing. Sometimes that servicing premium is paid upfront and other times it isn't. No matter what, all loan pricing comes from the same source, we are just calling it by different names.</p
Why do we do this? Right out the gate we're confusing consumers with different terminologies for fees and methods of paying an originator. Not only are we confusing borrowers, we are confusing ourselves! Consumers need to be on the same page from the get go when it comes to who is writing their loan (broker or banker), what fees they are being charged, and how the loan officer is getting paid.</p
Maybe housing finance reform should start with simplifying closing cost terminology and standardizing the manner in which an originator gets paid? I'm not talking huge changes here, just some consolidation of outdated terms and practices.</p
MND Search Results for “Financial Reform”</p
All Content Copyright © 2003 – 2009 Brown House Media, Inc. All Rights Reserved.nReproduction in any form without permission of MortgageNewsDaily.com is prohibited.
Latest Articles
By John Gittelsohn August 24, 2020, 4:00 AM PDT Some of the largest real estate investors are walking away from Read More...
Late-Stage Delinquencies are SurgingAug 21 2020, 11:59AM Like the report from Black Knight earlier today, the second quarter National Delinquency Survey from the Read More...
Published by the Federal Reserve Bank of San FranciscoIt was recently published by the Federal Reserve Bank of San Francisco, which is about as official as you can Read More...
Comments
Leave a Comment