The National Association of Mortgage Brokers (NAMB) and six other industry groups have written a letter to Ben S. Bernanke, chairman and Sandra F. Braunstein, director of the Consumer and Community Affairs Division for the Board of Governors of the Federal Reserve System, voicing further their concern over the terms “affiliate” and “third-party charges” used in the Board’s final rule regarding loan originator (LO) compensation practices, scheduled to take effect April 1, 2011. The collective group is asking the Federal Reserve Board (FRB) to review their interpretation of these terms to avoid, as the letter states, "irreparable injury to the various members of our associations, to competition in the marketplace, and to consumers if they are adopted."
Others joining NAMB in their request to the FRB to further clarify the rule include the Community Mortgage Banking Project (CMBP), Consumer Mortgage Coalition (CMC), National Association of Homebuilders (NAHB), National Association of Realtors (NAR), Real Estate Services Providers Council Inc. (RESPRO) and The Realty Alliance.
The FRB's LO compensation rule contains two key prohibitions: It prohibits payment to originators based on loan terms or conditions or proxies for them, and it prohibits what has been deemed "dual compensation of loan originators" by consumers and other parties, including those who often pay compensation (or at least ensure that brokers obtain some form of compensation) for brokering loans to them.
The LO compensation rule, officially known as "Regulation Z; Docket No. R-1366, Truth-in-Lending," was originally published in the Federal Register on Sept. 24, 2010, and has come under fire from a number of organizations for being too vague, including the Small Business Administration's Office of Advocacy. SBA Advocacy wrote a letter in January to the FRB stating that a compliance manual was never issued by the Federal Reserve on their rule and asked for additional time for businesses to comply with the changes to Regulation Z due to the fact that the compliance guide was not available at the time of publication of the rule. SBA Advocacy followed up with a second letter in February again seeking a delay in the April 1st implementation of the rule.
In the latest letter to the FRB, the collective group suggests two solutions to rectify the issue:
►For the FRB to continue to define an “affiliate” as one person, but to interpret the term “third-party” to include affiliates so that the fees of third-party title companies, appraisal companies, real estate brokers, etc. (whether affiliated with the originator or not) may be exempted from loan originator compensation so long as they are bona fide and reasonable.
►To limit the definition of “affiliate” to include mortgage lending and mortgage brokering businesses as specifically stated in the rule but not to include non-mortgage providers in that definition.