loan officer compensation reform

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.