The Mortgage Bankers Association (MBA) has sent a letter to Ben Bernanke, Chairman, and Saundra Bernstein, Director, Consumer and Community Affairs Division, of the Federal Reserve Board (FRB), requesting written guidance to help the industry implement the Board's final rule on loan originator compensation and steering published on Sept. 24, 2010.
In the letter, MBA President and Chief Executive Officer John Courson requests written guidance confirming previous direction that the Board staff has graciously provided MBA and its members either verbally or in person. MBA, on behalf of its members, is seeking written guidance due to the significant liability that lenders would face under the Truth-in-Lending Act (TILA) for non-compliance with the rule.
Click here to view the entire 19-page MBA letter.
The MBA letter contains a Q & A section to the FRB related to verbal advice given, conflicts between Dodd/Frank Act and its implementation, in addition to new questions never raised. The MBA requests that the FRB respond to all the concerns in writing or delay the April 11, 2011 implementation.
The final assessment of the MBA letter reflects the confusion between the Dodd-Frank and the Federal Reserve Board's April 11, 2011 implementation of the loan officer compensation rule. To delay the implementation of the rule not only serves the best interests of the loan officer community, but also the lenders, and most importantly, the consumers. Whenever the clarity of a regulation is blurred by an inability to get a consensus between regulators, legislators, the interest group affected by the regulation, and lastly, the consumer allegedly being protected by the regulation, then delaying its implementation is an absolute given.
"If guidance is not forthcoming, many lenders may be forced to be very conservative and implement compensation and loan pricing structures that provide for fixed compensation for originators at a level that can only be supported by higher loan prices to consumers," said the MBA letter.
The FRB received approximately 6,000 comment letters on the loan officer compensation proposal, including approximately 1,500 form letters and comments from mortgage lenders, banks, community banks, credit unions, secondary market participants, industry trade groups, consumer advocates, Federal banking agencies, members of Congress, state regulators, state attorneys general, academics, and individual consumers.
Commenters generally opposed the proposal on loan originator compensation based on the terms or conditions of the transaction, as well as the proposed anti-steering rule, and they also took issue with the vague definition of a "loan officer" as defined by the rule. The
final rule prohibits creditors or any other person from paying compensation to a loan originator based on the terms or conditions of the credit transaction, other than the amount of credit extended. This prohibition does not apply to payments that consumers make directly to a loan originator. However, if the loan originator receives payments directly from the consumer, the loan originator is prohibited from also receiving compensation from any other party in connection with that transaction.