Doomsday For Loan Officers? New Federal Mortgage Compensation Rules Go Into Effect Today

by Rich Vetstein on April 6, 2011 · 3 comments

in Mortgages

New Rules May Result In Higher Rates & Costs

Late yesterday, a federal appeals court cleared the way for the immediate implementation of controversial new Federal Reserve loan officer compensation rules. The new rules were intended to prevent the practice of “steering” where a loan officer improperly steered the consumer into higher interest rate loans which provided more commissions.

The new loan officer compensation rules have received much criticism by the lending community as an improper and even anti-American interference with their right to earn a living. I’m not going to bore you with the details of the rules, as they are fairly complicated. I suggest reading about them in David Gaffin’s scathing post “New Fed LO Compensation Rules Will Change The Lending Landscape & Possibly Capitalism! In summary, loan officers must be compensated based on the loan amount, not on other factors of the loan. Our readers, however, care primarily how it will affect them.

Effect On The Massachusetts Borrower

The national consensus and the resulting impact on the Massachusetts mortgage consumer will most likely result in an slight increase in rates and borrowing costs over the short term. Hopefully this will even out over time as lenders get used to pricing their loan products under the new rules. Some lenders with whom we work have already implemented the new pricing changes. It will be interesting to see what loan officers are quoting this morning when rates come out.

Mortgage professionals, what are your feelings about the new rules? Please comment below.

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  • While agree that this was a terrible decision passed by the Fed and upheld (for the moment) by the courts, it’s consumers who will lose. The rule does not limit our compensation, it limits our ability to adjust to the needs of the consumer, and offer a win/win solution.

    The crooks and cheats this rule was designed to protect against have all been forced out by the licensing and background checking requirements. The number of licensed individuals has shrunk to about 25% of what it was 4 years ago.

    Consumers borrowing small amounts will be underserved, and clients with large loans will overpay. It’s unfortunate, but accurate for the moment. Let’s hope someone can fix this mess.

    Bob Prevelige, CMPS
    Zenith Mortgage Advisors

  • Michael

    This is a big blow to capitalism as we know it …now that they have effectively limited earning potential in one industry this now clears the way for the same to happen to other professions . Soon government will tell doctors, lawyers ,bus drivers how much they feel they should be able to earn . Sounds like socialism to me … The problem with this ruling is it was made by lawmakers not people familiar with mortgage finance . This will effectively eliminate the ability for smaller brokers who help level the competitive playing field with the large lenders to pay their loan officer or worst retain the knowledgeable qualified brokers . This will leave only the large lenders ( half of which or under the governments thumb ) to control the industry . Without competition that leaves the big bailout lenders controlling the industry is easier nowadays to get a handgun then it is a mortgage imagine if only 4 large banks control everything . The ripple effect of this ruling will be felt for a long time …

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