Industry reaction to the Fed's position on originator compensation
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Industry reaction to the Fed's position on originator compensation

July 24, 2009

On the heels of the announcement by the Federal Reserve Board (FRB) that they have proposed changes to Regulation Z of the Truth-in-Lending Act (TILA), the mortgage industry has come out in support of this move that intends to define certain ambiguities that were once present. In addition, the amendments by the Fed will provide consumer protection to customers of home-secured credit. 
The National Association of Mortgage Brokers (NAMB) has come out in support of the FRB's proposed changes to Regulation Z, and will be thoroughly analyzing it for further comment. For years, NAMB has strongly advocated that consumers receive the same protections regardless of which origination channel they select to originate their loan.
“To focus on information the consumer needs to know about the product is the correct approach to consumer protection,” said NAMB President, Jim Pair, CMC. “The same mortgage products are offered by mortgage brokers, lenders, banks and credit unions; all are market competitors acting in the capacity of a mortgage broker. We look forward to working with the Federal Reserve Board to improve its proposed rule for the benefit of all consumers and to ensure that market participants are providing the same information to consumers.”
NAMB commends the FRB for recognizing that all competitors in the mortgage market receive indirect compensation inside the mortgage rate. For too long, hidden payments known as ‘overages’ and ‘service release premiums’ paid by Wall Street to lenders have gone undisclosed to consumers. The proposed rule goes a long way to ban these incentivizing payments to lenders.
NAMB calls for the Department of Housing and Urban Development (HUD) to immediately withdraw its final Real Estate Settlement and Procedures Act (RESPA) rule based on the actions taken by the FRB. Although NAMB agrees with the intentions of the final RESPA rule to simplify the mortgage process, the final rule, in its current form, will only lead to further harm for consumers rather than promote clarity in the mortgage process. The FRB Chairman hinted to such a withdrawal when he called to merge TILA and RESPA disclosures. In addition, Congress called for a withdrawal of the RESPA final rule for the same reasons when it passed HR 1728.
“HUD has failed to properly examine the final rule's impact on consumers and small businesses,” stated Pair. “It will put small business mortgage professionals at a significant competitive disadvantage, impeding competition in the mortgage industry and ultimately hurting consumers.”
NAMB will continue to analyze the proposed FRB rule and prepare necessary comments for submission.
"The Mortgage Bankers Association (MBA) has long supported clear and concise disclosures for consumers as a means to help ensure that borrowers completely understand the mortgage loan they are getting and the costs of that loan," said John A. Courson, president and CEO. "We are extremely pleased to see that the Federal Reserve Board has committed to working with the Department of Housing and Urban Development to better synchronize its TILA forms with HUD's RESPA forms and we strongly endorse the effort to create one set of forms that would satisfy both laws and better inform consumers."
Like NAMB, the MBA will also be closely examining the FRB's proposed changes and plan to submit comments within the public comment period as well. 
"Among other dramatic changes to the way loans are made and serviced today, the proposed rule contains broad restrictions on compensation for both mortgage bankers' origination employees and mortgage brokers that will require considerable analysis," said Courson. "Our goal in responding will be to ensure that potential borrowers have a crystal clear understanding of their loan without making the process more burdensome than it has to be for either the borrower or the lender."
For highlights of the Proposed Rule regarding home-secured credit, click here.
 

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