New rules for loan officer compensation went into full effect on April 6, 2011 after a federal appeals court lifted an order staying their implementation.
The rules are aimed at eliminating incentives for loan originators to “steer” borrowers into loans with higher interest rates which would produce higher commissions for the loan officer.
The National Association of Independent Housing Professionals (NAIHP) and the National Association of Mortgage Brokers (NAMB) filed legal challenges of the rules last month in U.S. District Court, claiming the Federal Reserve Board lacked the authority to regulate mortgage brokers and that the rules were “arbitrary and capricious.” The court denied the motions for a temporary restraining order and preliminary injunction.
Independent mortgage brokers, unlike mortgage originators employed directly by banks, work independently, brokering loans through multiple lenders. They argue that the rules favor mortgage originators employed directly by big banks, which will ultimately destroy their business.
With the new rules in effect, loan officers now earn their compensation based on the loan amount, not the interest rate.
For a summary and an opinion of the new rules, click here.