The new rules are designed to prevent future gouging and say:
- Brokers and loan originators can’t be compensated based on the loan’s interest rate or other terms.
- Brokers and originators cannot receive payments directly from a consumer, if they also receive compensation from the lender or another person.
“That will force many originators to lean heavily on lender-paid options instead of borrower-paid options. That will shift the cost up for consumers,” said Bill Kidwell, a loan originator and founder of Impact Mortgage Management Advocacy and Advisor Group (IMMAAG).
- Brokers and officers are forbidden from “steering” a consumer to a lender offering less favorable terms in order to increase the compensation.
- To prevent steering, brokers must present consumers with all types of loans in which the consumer expresses an interest, say both a fixed rate loan (FRM) and adjustable rate mortgage (ARM).
- Loan options presented to consumers must include the lowest interest rate for which the consumer qualifies; the lowest points and origination fees, and the lowest qualifying rate for a loan that has no risky features, including a prepayment penalty, negative amortization, or a balloon payment in the first seven years.
- Brokers can be compensated based only on a fixed percentage of the loan amount.
That could also create problems by influencing brokers and loan originators to steer borrowers to larger loans than they can really afford.
Broderick Perkins, MortgageMatch.com