As many loan professionals are already aware, April 1st is the date that the Dodd-Frank mortgage reform bill kick in and significantly change the way brokers and loan officers are compensated. Clearly the compensation plans for loan originators will see drastic changes any day. We wanted to remind industry insiders that this bill was created to help U.S. consumers. Clearly there was very little thought to how these changes will impact the mortgage and real estate industry. According to a spokesman for Real Estate News, “Many loan companies have already started to let loan officers go.”
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The compensation for mortgage brokers will change as well on 4/1/2011. Home loan brokers will not be able to be paid from the mortgage lender and the borrower. Some insiders believe that these changes could impact the mortgages rates being hiked. In the end, the borrower could be charged more points and fees to achieve a specific interest rate.
New subsection 129B(c) [1] prohibits yield spread premiums (“YSPs”) from being paid to or received by mortgage originators. Compensation paid to a loan originator in the form of YSPs or “other similar compensation” may not result in a loan officer’s total compensation to vary based on the terms of the loan, other than the amount of the principal. Incentive payments based on the number of home loans originated within a specified period of time are not considered YSPs. |
This new loan origination provision also restricts attempts to structure the payment of compensation to home loan originators in another form that could have the same effect as YSPs, which is to steer consumers to higher priced loans. A mortgage originator may not receive any origination fee, whether or not a YSP, except from the consumer, and any person who knows that a consumer is directly compensating a loan originator may not pay an origination fee. (Bona fide third party charges that are not retained by the creditor, mortgage originator, or an affiliate of the creditor or mortgage originator are not considered origination fees). If the loan originator receives no “compensation” directly from the borrower and the borrower pays no upfront discount points or origination points, then the loan originator may receive and any person may pay an origination fee.
Presumably, these mortgage loan restrictions are based on the assumption that, ultimately, the origination fee comes out of the consumer’s pocket, and these payments would tend to steer a consumer to higher priced loans or otherwise increase the cost of the loan. But as the mortgage originator is entitled to compensation, this provision assures that the originator is allowed to be compensated, only once. Section 129B also provides that the Board may, by rule, waive or create exceptions to this provision.
Other Prohibitions for Loan Origination
Section 129B further directs the Board to write regulations to prohibit:
- loan originators from steering a consumer to obtain a loan that the consumer lacks a reasonable ability to repay;
- originators from steering a consumer to obtain a loan that has predatory characteristics (such as equity stripping, excessive fees, or abusive terms);
- loan originators from steering a consumer from a “qualified home loan” for which the consumer is qualified to a loan that is not a qualified home loan;
- abusive or unfair lending practices that promote “disparities” among equally creditworthy consumers based on race, ethnicity, gender, or age;
- home loan originators from mischaracterizing a consumer’s credit history or the available loans or mischaracterizing or suborning the mischaracterizing of the appraised value of the property securing the loan; and
- if a loan originator is unable to suggest, offer, or recommend a loan that is not more expensive than the loan for which a consumer qualifies, discouraging a consumer from seeking a loan from another loan originator.
Read the entire Dodd Frank Mortgage Reform
