Two U.S. senators from both sides of the isle are calling for a delay of the loan officer compensation rule that is set to go into effect in less than a month. In a letter to the Federal Reserve chairman, the politicians warned that small mortgage firms could be devastated by the rule.
Sen. David Vitter (R-La.) and Sen. Jon Tester (D-Mont.) submitted a letter Friday to Federal Reserve Board Chairman Ben Bernanke, according to a copy of the message provided by Communications Network Management.
The pair of lawmakers urged Bernanke to delay the implementation of the Fed’s final Truth-in-Lending-Act rule. The regulation, 75 FR 58509, Sept. 24, 2010, impacts loan originator compensation and goes into effect on April 1.
Vitter and Tester say they are concerned about increased concentration in the mortgage market. They noted that the three largest U.S. banks accounted for more than half of residential originators, “with the top two alone accounting for a stunning 43 percent of the market.”
The senators claim that the Fed has failed to provide any written guidance or provide compliance clarity to small mortgage bankers and brokers.
“As a result, community-based local lenders and mortgage brokers essentially have been left in limbo, unable to effectively design compliant compensation systems for the future,” the letter stated.
Vitter and Tester are also concerned about the new rule’s impact once “defense to foreclosure provisions” required under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 go into effect on July 21. The provisions provide that a violation of the originator compensation rule on a loan will result in the ability of a delinquent borrower to assert the violation as a defense to foreclosure for the life of the loan.
“The interaction of the Fed’s compensation rule with the provisions of the Dodd-Frank act could have a devastating impact on the mortgage market as large lenders may be unwilling to take the risk of acquiring the loans from community banks, mortgage bankers and brokers,” the senators warned.
They said that “the mortgage market has been held hostage by severe regulatory uncertainty” in recent years, supporting growing market share by big institutions. The two are concerned that regulatory and legislative moves could lead to further concentration and higher borrower costs.
The letter follows two separate lawsuits filed last week by the National Association of Independent Housing Professionals and the National Association of Mortgage Brokers against the Fed. Both complaints were filed in U.S. District Court for the District of Columbia and sought to prevent the implementation of the loan officer compensation rule.
Last month, the Fed said it would likely abandon finalization of new Regulation Z rules because the public benefit would be questionable given that the Consumer Financial Protection Bureau, which gains TILA authority in July, would be responsible for combining RESPA and TILA disclosures, leading to further revisions.
The senators’ letter said that the Fed should apply the same logic to the loan officer compensation rule.
“The focus should be on getting these rules right, not getting these rules done right now — particularly since we know that they will be re-written in a few months,” the congressmen wrote.