The final rules are effective April 1, 2011, to provide lenders and originators time to develop new business models, implement necessary changes to their systems, and train personnel.
The final rules, which apply to closed-end loans secured by a consumer's dwelling, will:
- Prohibit payments to the loan originator that are based on the loan's interest rate or other terms. Compensation that is based on a fixed percentage of the loan amount is permitted.
- Prohibit a mortgage broker or loan officer from receiving payments directly from a consumer while also receiving compensation from the creditor or another person.
- Prohibit a mortgage broker or loan officer from "steering" a consumer to a lender offering less favorable terms in order to increase the broker's or loan officer's compensation.
- Provide a safe harbor to facilitate compliance with the anti-steering rule.
The final rule applies to loan originators, which are defined to include mortgage brokers, including mortgage broker companies that close loans in their own names in table-funded transactions, and employees of creditors that originate loans (e.g., loan officers). Thus, creditors are excluded from the definition of a loan originator when they do not use table funding, whether they are a depository institution or a non-depository mortgage company, but employees of such entities are loan originators.
The rule requires creditors and other persons who compensate loan originators to retain records for at least two years after a mortgage transaction is consummated.
Originator compensation can't vary based on terms of the loan like a higher ARM margin but loan level risk-based price adjusters are still in play. This prohibition does not apply to payments that consumers make directly to a loan originator (origination fee). However, if the loan originator receives payments directly from the consumer, the loan originator is prohibited from also receiving compensation from any other party in connection with that transaction.
***This last line almost makes it sound like if we collect "up front" origination we cannot also get "back end" compensation from the lender... It will be interesting to see how the lenders interpret this crap.