Senators Jon Tester, D-Mont., and David Vitter, R-La., are urging the Federal Reserve Board to indefinitely delay implementation of its loan officer compensation rule which goes into effect April 1.
In a new letter written to Fed chief Ben Bernanke, the Senate Banking Committee members raise concerns that the agency has not provided written guidance on the rule, which falls under the Truth in Lending Act. They also fear that it will lead to further concentration in the mortgage market, which is already "dominated" by the nation's three largest banks.
"To date, the Federal Reserve has declined to provide any written guidance to small mortgage lenders and brokers, which would provide clarity and assist them with compliance," they write in a March 11 letter. "As a result, community based lenders and mortgage brokers essentially have been left in limbo, unable to effectively design compliant compensation systems for the future."
The two senators note that the Fed has decided not to promulgate three other TILA rules mandated by the Dodd-Frank bill and passed that responsibility on to the new Consumer Finance Protection Bureau, which will assume regulatory authority over TILA and the Real Estate Settlement Procedures Act on July 21.
They are concerned the LO compensation rule and "inconsistent" implementation of other TILA rules could "unnecessarily disrupt" the mortgage market.
"For these reasons, we urge you to delay implementation of the loan originator rule so these provisions can be better coordinated with forthcoming TILA regulations and the impacts of loan concentration can be more thoroughly studied," the senators say.
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