As new mortgage-related regulations fly fast and furious across the landscape, originators on both sides of the forward/reverse aisle are scratching their collective heads trying to determine what they can and can’t do, particularly when it comes to compensation.
For example, the new Federal Reserve Board restrictions on loan officer and mortgage broker compensation that take effect April 1st, said to be very similar to language in the new Dodd-Frank Wall Street Reform and Consumer Protection Act, prohibits payments to a mortgage originator that vary with terms of the loan.
Meanwhile, Truth-in-Lending rules consistent with the reform act prohibit the payment of yield-spread premiums to brokers, if the broker receives “any compensation directly from the consumer.”
Asked to explain the meaning of all the new rules, David Peskin, Chairman, Guardian First Mortgage, admitted: “I am waiting for clarity myself. What does not make sense, and this is where we need clarity,” he went on, “is if a broker charges an origination fee [whether] the consumer should be able to get a lower rate.”
Nikolay Ratajczak, President, Advent Financial, Inc., says he “will be looking for insight and direction from our wholesale sources. They control the purse strings and should understand the regulatory framework for compensating TPOs.” Ratajczak sees a larger trend at work. “We are reverting to the ‘80s,” he believes, “when most business was done by depository institutions and brokers served a narrow or underserved market segment.” Going forward, says Ratajczak, “TPOs will seek to distinguish themselves through creative fee structures (front, versus back-end), as a result of turn-times and service, or working with more challenging borrowers, just as they have done in the past.”
Interestingly, the trade group representing mortgage brokers “applauded” the Federal Reserve Board ruling on compensation. NAMB President William Howe, said “the rule allows consumers to shop for a loan through a level playing field of all loan originators, regardless if they work at banks, lenders or credit unions.” This is just the beginning of what is expected to be a lengthy adaptation process as new rules and regulations cascade down to the originator level.
Written by Neil Morse