How Will the New Loan Originator Compensation Rule Affect Mortgage Brokers?
Mortgage Companies will want to start planning on how to implement the new rules that are set to go into effect April 1, 2011. The three main issues that companies will need to address are:
1. Originator Compensation: “ For any consumer credit transaction secured by real property on a dwelling, loan originator shall receive from any person and no person shall pay to a loan originator, directly or indirectly, compensation that varies based on the terms of the loan (other than the amount of the principal).”Brokers may not accept compensation from both the consumer and the lender.
- Originator compensation will based on a basis point model, flat fee model, base salary, and/or hourly wage, or combination of these concepts. A clear contract with the loan officer will need to be in place and is going to be subject to regulatory review. Bonuses and commissions based on fee income will not be compliant.
2. Brokers may not accept compensation from both the consumer and the lender.
- Broker compensation is being capped at 3%, however the fees earned can’t be split between the borrower and lender, it must come from only one source.
3. Loans originated must be in the consumer’s best interest.
- While the “Rules” are not to be construed as having an agency or fiduciary relationship between the originator and the consumer, originators do have a “Duty of Care” to their clients. Loan officers must present 3 or more loan options that meet safe harbor criteria, the loan has a net tangible benefit, and the client has the ability to repay the loan. Originators may not “steer” a consumer to a transaction to increase his/her compensation.
For additional information, contact Jeff Flees directly at 877-710-0948 or firstname.lastname@example.org