Mortgage Originator Compensation Rules

4/14/2011

By Fran Sponsler, CRCM, CCBCO

On April 1, 2011, the final rules that protect mortgage borrowers from unfair, abusive, or deceptive lending practices that can arise from loan originator compensation practices went into effect. The new rules apply to all persons who originate loans, including mortgage brokers and the companies that employ them, as well as mortgage loan officers employed by depository institutions and other lenders.

Main Provisions of the Rule

The final rules apply to applications received on or after April 1, 2011, and are closed-end consumer requests that will be secured by a consumer’s dwelling. The rule covers any dwelling, a first or subordinate lien, a reverse mortgage, and will:

• Prohibit payments to the loan originator that are bases on the loan’s interest rate or other terms.
• 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 loan product offering less favorable term in order to increase the broker’s or loan officer’s compensation.

Implementation of the rules will require financial institutions to review their current compensation practices and make any applicable changes and provide training to affected personnel.

Additional Future Provisions

The Dodd-Frank Wall Street Reform and Consumer Protection Act also restricts practices concerning loan originator compensation. The Reform Act includes provisions that are similar to the Board’s final rules but also addresses other practices not covered by the final rules. The Board plans to implement the Reform Act provisions in a future rulemaking with opportunity for public comment.
For more information about the Board’s Originator Compensation rules visit the the Federal Reserve's web site here.