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April 5, 2011: The Appellate Court has lifted the stay issued Friday, April 1, 2011 regarding the Federal Reserve Board Rule on loan officer compensation. Previously slated to start on April 1, the stay has now been lifted and goes into effect immediately. It appears that most lenders will accept loans submitted tomorrow, April [...] by Amy Avitable, director of compliance services, Sheshunoff Consulting and Solutions As published in Scotsman Guide’s Residential Edition, November 2010. The landscape for mortgage-broker compensation is changing. Are you ready? Here’s a look at what’s coming and how brokers — and their lenders — can evolve their payment models and prepare for the future. * * * The Federal Reserve Board’s final rule on loan-originator compensation takes effect April 1. That date marks the end of an era in how mortgage brokers, mortgage-company employees and even loan officers within banks are paid. The final rule, announced this past Aug. 16, prohibits paying mortgage brokers and other loan originators based on the interest rate paid by borrowers or on any other term or condition of the loan other than the amount of credit extended. As a result, the rule prohibits yield-spread premium (YSP) that is based on the interest rate and interest-rate overages paid to loan originators. For many brokers and other loan originators, YSP has become a common means of getting paid. Because the new rule applies to loan originators — defined as people who arrange consumer credit for compensation — it will cover mortgage brokers, certain employees of mortgage companies and financial institutions, and lenders themselves if they are extending a loan that is funded by another creditor. The rule, however, only applies to closed-end consumer credit secured by a dwelling. Consequently, commercial loans aren’t covered even if they’re secured by someone’s home. Home-equity lines of credit and consumer loans not secured by a dwelling also aren’t covered by the rule, although the Federal Reserve plans to consider whether they should be as it issues more regulatory requirements in the future. Continue reading Broker compensation will soon take on a new look Bureau of Financial Protection created: Loan Originators lose Yield Spread Premium: Brokers better off working with a Bank Affiliate Company if they want to stay in the business. Mortgage Originator Requirements and Prohibitions as outlined in the new law: The Law creates a new definition of “mortgage originator”: Under the Law, a mortgage originator includes persons taking applications, assisting consumers in obtaining a mortgage, or negotiating the terms of a mortgage, but does not include administrative employees, certain employees of manufactured home retailers, real estate brokers unless they are compensated by a lender, broker or other mortgage originator, and servicers or their employees, including those involved in loan modification/loss mitigation. A person “assists a consumer in obtaining or applying to obtain a residential mortgage loan” by, among other things, advising on residential mortgage loan terms, preparing residential mortgage loan packages, or collecting information on behalf of the consumer with regard to a residential mortgage loan. Continue reading Consumer Finance Law Passes April 5th, 2010 The Federal Housing Administration (FHA) announced it will issue a final rule in the next few days to reduce and manage counterparty risks to its insurance funds as it continues to play a critical role in today’s housing market. The new regulations will increase net worth requirements of FHA-approved lenders (including reverse mortgage lenders), strengthen lender approval criteria, and make lenders liable for the oversight of mortgage brokers. “These changes support quality mortgage lenders while excluding organizations that are ill-equipped to handle the risk associated with market variations,” said FHA Commissioner David H. Stevens. “That is particularly important now when a robust, competitive mortgage finance market is a crucial element in rebuilding the American economy. Lenders bear the overall risk of FHA-endorsed loans, therefore it makes sense for them to approve their counterparties and have sufficient capital to operate.” Continue reading FHA Raises Net Worth Requirements to $2.5 million Over Next 3 Years A number of Senate Democrats, led by Sen. Jeff Merkley (D-OR), sent a letter to the Federal Reserve Board calling for a ban on YSP, labeling it as an unfair and deceptive practice used to steer consumers into riskier mortgage loans and gain a larger profit. The letter was clearly used to protect Wall Street [...] |
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