With a little more than 30 days until the Federal Reserve Compensation rule goes into effect, reverse mortgage lenders are dragging their feet on how they plan to implement the new rule.
The Fed rule bars tying compensation to terms of the loan and is expected to drastically change the way individual loan originators are compensated. For smaller brokers, the wait makes it difficult to predict how their business will run starting April 1.
“It sounds like we can’t cut our compensation if we need to pay for closing costs and that could kill more transactions,” said Jack Belles, president of Reverse Mortgages of New England. Faced with declining home values, Belles told RMD he has already had thirteen deals fall through in 2011 due to borrowers being short to close after obtaining an appraisal. “The compensation issue just adds to the uncertainty,” he said.
Since brokers rely on wholesale lenders for funding, there isn’t much they can do to prepare until the lenders announce how they’re handling compensation. The problem is, none of the reverse mortgage wholesale lenders RMD spoke with have released how they’re implementing the Fed’s rule. If the industry adopts the same policies as the “forward” business, there could be different agreements for each lender. The agreements will remain in effect for certain periods but can change if there are legitimate reasons.
One executive at a leading reverse mortgage lender told RMD that everyone is holding their cards close and waiting to see how big lenders are handling the process. “Once the news of how larger companies are handling it gets out, everyone can make changes to their policy and compete,” he said.
Several associations have requested that the Fed delay the implementation and one has even filed suit against the agency. However, Jim Milano, member at Weiner, Brodsky, Sidman and Kider, PC told attendees during a National Reverse Mortgage Lenders Association webinar he doesn’t think the rule will be delayed.
“I could be wrong, but there is a segment of the market, particularly banks in forward mortgage market that already started complying in January and they don’t want to see the rule delayed.” When asked about the potential lawsuits many are threatening, Milano said that if anyone has the resources to carryout a suit, “it will be a temporary victory.”