SAD, SAD DAY FOR AMERICA! The court upheld the Federal Reserve's Loan Officer Compensation Rule set to go into effect on April 01. No fooling!
National Association of Mortgage Brokers and National Association of Independent Housing Professionals both had law suits to delay the implementation of the "Rule", both were denied today.
There were numerous supporters of a delay in the Senate and Congress along with the Small Business Association, who could see small business suffer at the hands of this "Rule"
I don't have to tell anyone how difficult the housing market has been across the nation. As Loan originators and Realtors, home buyers and sellers, we KNOW it. We are living it!
The Federal Reserve's Loan Officer Compensation Rule does a few things. The intent is to protect consumers, the result will be quite the opposite. Some Facts:
- In particular every loan originator no matter where they work will be paid a set percentage of every loan they originate. They cannot vary from one borrower to another, however, every originator can cut their own deal with the employer. Depending upon who answers the phone at the bigger banks a borrower could be quoted different rates. Interesting.
- The loan originator can no longer pay ANY costs or fees or reduce a rate for a borrower.
- The really good, stable borrower will pay just the same as the one who is rocky and barely qualifies for a loan.
- There will be floors and ceilings in place. The smaller loans may be difficult to place if they fall below the floor. The floor is not negotiable. The ceiling will be set by every individual loan originator as to the max they want to make.
- To some degree this "Rule" is not income limiting for a loan originator, but the originator may just as likely make MORE money than they want to. On big loans they cannot take less than the ceiling, even if they want to, and most of the loan originators want to.
- Prior to April 01, a borrower could ask to pay a somewhat higher rate and come to closing with less funds. Now that will be harder to accomplish, depending a lot of factors. A broker cannot build those costs into the yield spread premium. In some cases there may be some money that can be credited for SOME of the closing costs, but not the latitude that has been available.
- Pricing is very complicated now. As has been the case with every change made to the home financing process it makes it harder for a consumer to understand.
- As is customary the banks will not show the SRP they make when they sell the loan, nor will the originator at the bank be required to say what he is being paid. Brokers will have to disclose everything.
This ruling will have one lasting impact. It will reduce competition. There is an expectation that brokers will close up. Less competition will be higher interest rates. Since originators will no longer be able to "save" a loan with their income, lenders will pad the rates to hold back money in case they have to step up and save the loan. Higher cost to the consumer; Fewer options.
What the Federal Reserve and the courts miss here is that mortgage brokers typically SAVE the consumer money. It is mystifying (a) why this Loan Officer Compensation Rule is necessary and (b) how it can be implemented when they are essentially telling a private company how much to pay their employees.
One has to wonder if there is a method to the madness. The appraisal independence rule has wreaked havoc with real estate transactions. Now this latest rule will tighten an already struggling housing market even more. Lastly, there is the question of who is next. A sad, sad day for America.