House Committee to Examine Fed’s Loan Originator Compensation Rule

The House Financial Services Committee will examine the implementation of the Federal Reserve’s rule that changes the compensation model for mortgage originators prior to the effective date of April 1.  The committee said it’s concerned the rules may have an adverse impact on the ability of small businesses that originate mortgages to remain in business.

Drafted earlier this year, the Fed’s rule is designed to prevent compensation based on a loans terms or conditions and to prohibit steering a consumer into a higher rate to receive additional compensation.  The Mortgage Bankers Association joined other trade groups in asking the Fed to delay the implementation of the rule.

“The Rule is far-reaching and requires major changes to long-operating compensation practices that heretofore have been both legal and prevalent,” said the MBA. “Unfortunately, in our view, the Rule does not definitively address many matters of particular importance, and has engendered numerous questions from creditors and loan originators seeking to comply.”


The National Association of Mortgage Brokers praised the committees decision to look into the proposal.  The association called the rule was a “game changer” for the mortgage industry and argued that mortgage brokers and lenders are ill-equipped with how to fully comply.

For a copy of the committee oversight plan, see here.

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    • Zorro – There should be something that can be done because thousands of small businesses will be closed and consumers will pay higher costs as a result of this misplaced rule.

      • Lance,

        While I wish something could be done, I do not have much hope of seeing it accomplished.

  • Control of compensation, price fixing and this form of social engineering is solely designed for the advantage of the largest financial institutions.
    The many changes implemented during this administration’s tenure are designed to placade their core business political contribution base.
    Their goal is to reduce the competition and minimize the broker’s import. Who will reach out to the indigent and most needy? If Congress and the Fed want to limit income and restrain trade, please start with some other group. Perhaps the insurance industry, law practices, insurance companies and financial institutions (Goldman Sacks?)would be more receptive.
    I don’t think so. their political ocntributions have purchased “reform” for others

    • Mortgagemaven,

      From one maven to the other, welcome to the RMD world.

      Your premise is interesting. As with Bank of America, promises by lower management must be matched with performance. So far even when conservative estimates have been used, the market fails the budget teams at the major lenders. The remaining Forbes 100 players may want to paint a rosy picture on their commitment to the industry but they are merely parroting what they are able to squeeze out of those with sympathetic ears in upper management.

      Dominance has rarely been good for any industry which needs to grow unless growth is coming spontaneously or through novelty combined with need. The very largest retailer did little to expand the market since late 2004. Like a bottom feeder and a vulture it fed on the innovation of Senior Lender Network and to some degree Financial Freedom. It will do the same with the demise of Bank of America.

      If we think things are bad now imagine if Baby Boomers were not coming into the market in waves. 72,000 endorsements for 2010 might only have been 65,000 or less.

      While I have no hero worship for the biggest lenders, they are like great white sharks and the smaller lenders like remora. The biggest lenders may falsely believe they can grow the market but the facts speak otherwise. While they are excellent at taking a borrower who is not a customer and getting that customer to acquire more services, they are poor at bringing in those new customers without an innovative, active, and growing broker marketplace. Larger lenders which eat the brokers who work with them do so at their own short sighted detriment.

  • Sounds like someone in government has realized the damage this rule will do to citizens and small business. Great news, let’s hope the clearer thinking continues.

  • I feel we need to re-look at the compensation plan. The plan has to many flaws in it. Not only does it have many flaws but it goes below the income standards we once had as a compensation plan over three years ago.

    However, I am concerned about the House Financial Services Committee being capable of examining anything, much less the Federal Reserve’s rule that changes the compensation model for mortgage originators.

    They may have concerns about the compensation plan but can they actually do something about that will make sense to the industry. I am concerned we will lose good people unless we make the plan reasonable where an originator can make an above average income.

    I am in agreement that the compensation we have seen being paid to originators over the past couple of years has been abused to the point of being predatory. It seems the Fed’s along with companies themselves went over the edge. Now just the opposite is taking place, they are going over the edge to the left!

    Time will tell what will happen. Now that we have the feds thinking about, “Did we make a mistake”? The need to extend the affective date is almost a must. Have a good day!

    John Smaldone

  • New principal limit factors, rising interest rates, and the hesitancy of the secondary market to buy the loans may have already taken care of the perceived greed of mortgage brokers selling HECMs, but it certainly doesn’t provide transparency as to what the big banks get (although BofA getting out the business suggests RMs are not as rich for anyone anymore. As Mortgagemaven points out, Congress and the Fed may not want to limit income and restrain trade with some other group such as the insurance industry, insurance companies and financial institutions, but doing that sure sounds good to me! And I am not a bleeding heart, but I do wonder how the largest voting block in the US benefits from decreased competition and decreased proceeds in a time when everything else is squeezing the senior’s wallet.

  • Why does the Federal Reserve have anything to do with how brokers are paid? As a private bank where the founders are paid a percentage of transactions generated from the bond sales, can someone tell me why they are in the MBA regulator business?

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