New regulations on how mortgage loan officers’ payment for originating home loans in the US are intended to protect consumers and provide a clearer picture of how the mortgage professional can generate money off the loan.
However, according to some industry experts, the new rules are producing new problems.
The Federal Reserve’s rules targets the limiting of predatory lending. They forbid loan officers from being remunerated based on the loan’s terms and conditions, aside from the loan amount.
For example, a loan officer cannot earn a higher commission for selling a home loan with a 5.25 percent rate against a five percent rate, according to Tom Meyer, Chief Executive of J.I. Kislak Mortgage, a mortgage lender in Florida.
Loan officers and mortgage brokers are disallowed from “steering” people into mortgages based on the compensation they will receive. Another factor effectively sets the rule on who pays a mortgage broker: “Either the lender pays the broker directly or the consumer does — but both can’t pay for the services.”
“Consumers shouldn’t have to worry about brokers putting their own financial interest in front of the consumer’s,” said Kathleen Keest, Senior Policy Counsel for the Centre for Responsible Lending.
Some analysts also believe that the rules’ nuances put mortgage brokers at a competitive disadvantage, giving them less compensation flexibility than large banking institutions.
The matter held up the implementation of the new regulations, which were supposed to take effect on 1 April 2011. However, the US Court of Appeals issued an emergency stay at the last minute, changing the date to 5 April 2011.
Lisa Schreiber, Executive Vice President of Wholesale Lending at TMS Funding, said, “I like the idea of a level playing field. I like the intent of structuring what is realistic for a loan officer to make.”
But Ms. Schreiber also said that some elements of the new regulations could end up costing consumers more. A wholesale mortgage operation provides underwriting decisions and makes financing available to mortgage brokers.