Mortgage brokers have asked the Federal Reserve for more time to deal with game-changing compensation rules. They warn that the rules unfairly favor mortgage bankers.
New compensation rules are set to be enforced as of April 1.
But that is not enough time, according to the National Association of Mortgage Brokers which is “extremely concerned” about the consequences of the rule.
“The rule, by design, is a game-changer for the mortgage industry,” the trade group said in a Jan. 18 letter to Fed Chairman Ben Bernanke and Fed Director Sandra F. Braunstein. “It forces the industry to re-examine well-established and, until recently, legal policies and procedures, and requires significant changes to the way in which loans are priced and the way that loan originators may be compensated for their services.”
NAMB is asking for a one-year delay in the enforcement of the rule — at least until after the Consumer Financial Protection Bureau has assumed implementation of its authority under the Truth in Lending Act. The CFPA was empowered with TILA oversight through the Dodd-Frank Wall Street Reform and Consumer Protection Act.
One of its concerns is that it won’t be possible to accurately determine the impact the regulation will have on consumers.
“Absent formal guidance from the board, a number of institutions are indicating that they will have to proceed with extreme caution when implementing new fixed loan originator compensation structures, which will likely result in higher loan costs for consumers,” the letter stated
NAMB asks that all parties understand how the rules will be interpreted, that they are applied equally and that they won’t continuously change. It urged the board to issue formal written guidance on a number of significant but unclear issues.
Confirmation was requested that it is acceptable for a lender to pay a mortgage brokerage an hourly fee on complex transactions in addition to a 2 percent commission. The number of hours would be based on the time spent by the mortgage broker’s employee.
The brokers also expressed concern that a mortgage brokerage company is considered a “loan originator” even if it utilizes a warehouse line-of-credit to fund the loan.
“The board’s interpretation of mortgage brokerage firms as loan originators, as defined in the rule, places the mortgage brokerage firm at a real and substantial competitive disadvantage as compared to other loan originating entities,” the brokers warned. “By treating mortgage brokerage firms differently than other similarly situated loan originating entities, the board is selectively picking winners and losers and harming consumers in the process by reducing competition and increasing loan prices for everyone.”
Another concern was how mortgage bankers and mortgage brokers can be compensated differently based on the type of loan and loan volume. Disparate exemptions from the rule was an additional issue raised.
The association, which operates from Plano, Texas, has made a request under the Freedom of Information Act — or FOIA — for copies of documents related to the rule such as communications between the Federal Reserve Board and federal agencies. With such information in-hand, NAMB is “confident” a “less burdensome” alternative will be implemented as the true economic consequences are fully understood.
