Mortgage Brokers: New Lending Rules Single Out Small Business

While reception of new loan originator compensation rules announced by the Consumer Financial Protection Bureau last week was largely positive, some organizations including The Association of Mortgage Professionals (NAMB) have since expressed concern that the rules will not be in the consumer’s best interest. 

The LO comp rules spelled out by the bureau “will harm consumers” according to NAMB. 

“This is the very opposite of the CFPB’s purpose,” said NAMB President Donald Frommeyer from Amtrust Mortgage Funding in Carmel, Ind. “This rule, together with the Qualified Mortgage (QM) rule that was recently released, will destroy competition by eliminating the ability of small business mortgage brokers to compete with larger creditor lenders.”

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The rules were largely geared toward prevention of steering by prohibiting steering incentives and dual compensation and also established new qualification and steering standards for loan originators. 

“Before the financial crisis, many mortgage borrowers were steered towards risky and high-cost loans because it meant more money for the loan originator,” said CFPB Director Richard Cordray, in announcing the rules. “These rules will hold loan originators more accountable by banning the incentives that led so many of them to direct consumers toward disaster.”

The rules will adversely impact small mortgage businesses, however, urges NAMB.  

“It seems that every part of these rules imposed by the CFPB are intended to make it increasingly difficult for the small business to operate,” said Frommeyer. “Most of the 10,579 broker companies in the nation have five or less employees. We operate in all of the small markets that the creditors do not want to go to or have offices in. Yet these are the companies that the CFPB seems to be singling out. They are deciding who the winners are and who the losers are. The mortgage broker shop is an integral part of America and to the homebuyers nationwide being who refinance and purchase homes each and every day.”

Written by Elizabeth Ecker

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  • There is a far more basic question to be answered. Will any decision of the CFPB have legal standing?

    For those who are not familiar with why the impetuous and ill advised recess appointment of Director Cordray is now at greater jeopardy than ever before, here is an article as to why:

    http://www.americanbanker.com/issues/178_18/with-nlrb-ruling-cordray-recess-appointment-called-into-question-1056185-1.html

    What could this mean to our industry? Perhaps another report and reversal of the recent LO Comp rule. But will the Supreme Court act before rules go into effect which may be invalided if the Supreme Court finds the President unconstitutionally appointed the Director? This chain of events could have a very substantial impact on our industry. Of course the President has little to complain about since he was in the Senate when Majority Leader Harry Reid started this practice to keep then President George W. Bush from making recess appointments.

    Until the White House decides to appeal this decision, it is unsettled if the CFPB has had any Director at any time in its short history. The President was so unnerved he immediately placed the Cordray appointment before the Senate for confirmation. The impetuous decision by AG Holder and the resulting recess appointment by the President may end up being a considerable setback to the CFPB for several years to come.

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