Fed Responds to Loan Officer Compensation Lawsuits

The Federal Reserve Board responded on March 18 to lawsuits filed by the National Association of Mortgage Brokers and the National Association of Independent Housing Professionals that would delay implementation of the Fed’s loan officer compensation rule. The response denied the claim of both associations that the rule would cause imminent, irreparable harm to loan officers and their business.

In addressing the NAIHP suit, the Fed wrote that “NAIHP has failed to demonstrate any imminent, irreparable harm as a result of the Loan Originator Rule. NAIHP is unable to substantiate any imminent, actual economic loss of any severity. And its self-serving, unsupported statements predicting the hardships that might arise under the Rule are insufficient to establish irreparable harm. A claim that government regulations will have an economic impact on regulated parties is not tantamount to establishing irreparable harm sufficient to warrant injunctive relief.”

Similarly, in response to NAMB’s claim, the Fed wrote that NAMB has also failed to show that the claimed economic harm to its members is so severe as to meet the high standard for irreparable economic harm.

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“As we have shown, the costs of complying with regulation of a business are not sufficient to warrant extraordinary relief unless they threaten the existence of the business,” the Fed wrote.

The response concluded that although the rule may prevent loan originators from continuing some employee compensation models that are currently in use, the evidence submitted fails to demonstrate that originators can’t comply with the new rule while continuing to maintain their businesses.

The rule is still scheduled to go into effect on April 1. Over the past week, some lenders have released new compensation guidelines to their originators, scheduled to take effect in advance of the April 1 implementation date.

At a National Reverse Mortgage Lenders Association Conference last week, NRMLA told members not to wait for April 1 and that it was unlikely implementation of the rule would be delayed.

Written by Elizabeth Ecker

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  • While these statements are little more than the responses of the Fed to the requests for injunctive relief (and are also “self-serving”), it was reprehensible how late the NAMB came to the game. It is the NAMB which could have brought the greatest pressure to bear. The timing of the response was all but derelict.

    It was clear the NRMLA letter was little more than a statement of sympathy to the plight of brokers. By their actions it seems both the NAMB and NRMLA were resigned to the April 1 date.

  • The entire situation illustrates how ignorant government officials are to the realities of private industry, and thus the economy as a whole.
    And, the actions (or lack thereof) of our industry lobby groups only prove their allegiances to the largest of their members with little concern for the small businesses.

  • vincenzo1,

    YSP is much different than lender gross profits resulting from the sale of loans directly to the secondary market or through intermediaries to the secondary market. If you can tell us how much that will be with a significant degree of certainty, you need to change careers. You should be an independent forecaster of profits to all industries.

    In reality YSP is not a “full disclosure” issue. It is plain and simple a fee disclosure issue. A broker is not a lender. All the YSP disclosure says to a borrower is beyond what the borrower is paying directly to the broker, here is what the lender is paying your broker for doing this particular loan. It is no different than the commission a real estate licensee representing a buyer must disclose in a deal even if that commission is coming from a split of the real estate commission being paid by the seller.

    Because of the disclosure, brokers have been dropping other fees far more than they did in the past. It has worked to save consumers money at least when borrowers have used brokers rather than lenders.

    Yes, the playing field should be level but how can that be accomplished? How do lenders disclose something they do not yet know? Should that include SRP even if they do not sell that part of the loan?

    While you are not wrong, how will the disclosure work? If that can be done, lenders should be required to disclose all gross profits on mortgages net of payments due to originators and brokers. Of course, the real problem is getting your idea approved by Congress and the President and then having the Fed implement it.

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