HB 610 is scheduled to become effective July 31st and was passed to implement the Secure and Fair Enforcement for Mortgage Licensing Act and was meant to prohibit compensation methods that rewards brokers for selling a higher interest loan.
New Hampshire is the first state to ban YSP’s, but it looks like more might be on the way. The Federal Reserve Board is pushing the mortgage industry toward paying originators a flat fee under a proposed rule it issued last week however lenders can continue to compensate loan officers and brokers based on the interest rate, according to regulatory experts.
American Bankers Association senior regulatory counsel Rod Alba told National Mortgage News that that the Fed is prohibiting compensation based on the terms and conditions of the loan transaction. "The proposed rule does not appear to ban the practice of compensating the mortgage broker through the interest rate. But it does intend to put limits on the more abusive uses of yield-spread premiums," Mr. Alba said.
The Fed also is seeking public comment on allowing lenders to compensate LOs and brokers based on the principal amount of the mortgage. The Fed notes that compensation based on the loan amount is a "common practice today."