Sen. Pat Toomey (R-PA) has sent a letter to Federal Reserve Board (FRB) Chairman Ben S. Bernanke urging him to delay the implementation of Regulation Z; Docket No. R-1366, Truth-in-Lending regulation governing loan originator (LO) compensation set to take effect April 1, 2011. In his letter, Sen. Toomey argues that the rule could have unintended consequences, penalizing small lenders and mortgage brokers. To date, the Federal Reserve has failed to provide small businesses with adequate guidance on how to comply with the rule’s requirements.
Sen. Toomey recently met with members of the National Association of Mortgage Brokers (NAMB) during the association's recent Legislative & Regulatory Conference in Washington, D.C. In his meeting with NAMB, members of the associaiton brought to his awareness the severe impact this rule could have on home financing options to consumers.
"NAMB applauds Sen. Toomey's letter urging the Federal Reserve Board to delay the LO compensation rule," said National Association of Mortgage Brokers (NAMB) President Mike D'Alonzo. "We appreciate Sen. Toomey's understanding of the debilitating consequences on the mortgage broker industry and small businesses. Consumers are protected best by competition along with education and transparency."
Sen. Toomey (fourth from left) meets with members of NAMB during the recent NAMB 2011 Legislative & Regulatory Conference
Recently, Sen. Toomey's fellow Senate members, Sens. Mark Pryor (D-AR), David Vitter (R-LA) and Jon Tester (D-MT), submitted letters requesting a delay in the FRB's April 1st enforcement of the LO compensation rule.
"I urge the Board to commence a proactive education campaign to inform mortgage brokers and lenders of requirements in the rule," said Sen. Pryor in his letter to Bernanke. "Webinars, seminars and conference calls can be effective tools to education loan originators and answer their questions."
The text of Sen. Toomey's letter to the FRB appears below:
March 28, 2011
The Honorable Ben Bernanke
Board of Governors of the Federal Reserve System
20th Street and Constitution Avenue, NW
Washington, D.C. 20551
Dear Mr. Chairman:
I write to respectfully request that you delay the implementation of the recently published final Truth-in-Lending (TILA) regulation governing Loan Originator Compensation (75 FR 58509, September 24, 2010) beyond April 1, 2011. There have been complaints that the final rule will have unintended consequences for the residential mortgage market. Such a delay in implementation will allow for additional time to ensure that the final rule accomplishes the Federal Reserve’s goals in a fair and consistent manner.
Specifically, there is a concern that the final rule will have the unintended effect of increasing concentration in the residential mortgage market. Before the housing crisis began in 2007, the home mortgage market was dominated by three banks which together accounted for approximately 51% of all residential mortgage operations. The two biggest of these banks, alone, accounted for approximately 43% of the market. The TILA rule governing Loan Originator Compensation will place significant burdens on small lenders and mortgage brokers. Yet the Federal Reserve has thus far failed to provide these small businesses with guidance on how to comply with the final rule’s requirements. In the absence of such guidance, these burdens will make it difficult for small lenders and mortgage brokers to design new compensation systems to comply with the rule. This will have a detrimental effect on countless jobs and will restrict access to low-cost mortgage lending for many Americans.
The Fed’s apparently inconsistent treatment of regulations regarding the mortgage industry has also raised concerns. Just this month, the Federal Reserve’s Board of Governors announced that it does not currently plan to finalize three other rulemakings under Regulation Z prior to the transfer of authority for such rulemakings to the Consumer Financial Protection Bureau on July 21, 2011. According to the Board of Governors, finalizing additional rules in a “piecemeal fashion” prior to this transfer of authority “would be of limited benefit, and the issuance of multiple rules with different implementation periods would create compliance difficulties.” Given these concerns, it seems prudent to apply the same standard to the Loan Originator Compensation rule in order to ensure that all new rules that specifically cover the mortgage finance industry are applied in a consistent fashion.
Thank you for taking these concerns into consideration. I look forward to your response.
Pat Toomey, United States Senator