The National Association of Mortgage Brokers (NAMB) and the National Association of Independent Housing Professionals (NAIHP) have submitted their joint response on Tuesday morning to the United States Court of Appeals for the District of Columbia stay of implementation of the Federal Reserve Board's (FRB) Regulation Z; Docket No. R-1366, Truth-in-Lending on steering and loan originator compensation. NAMB requested and was granted a stay on April 1 of enforcement by the FRB of the LO compensation rule. On Monday, the FRB filed their opposition in the United States Court of Appeals against the stay on the Rule, meeting the Court of Appeals' request for the April 4 deadline for a response.
The FRB asked the Court of Appeals to ignore the “general purpose and structure” of the Homeownership and Equity Protection Act (HOEPA) and the Truth-in-Lending Act (TILA) and to reach an interpretation that would grant the FRB nearly limitless authority to regulate the entire real estate industry, both creditors and non-creditors, and any aspect of any industry where a federally-related mortgage loan is involved. NAMB argues that if the FRB's expansive interpretation of its authority were accepted, it would be permitted to regulate even those industries who were expressly exempted under the Dodd-Frank Act, including real estate agents, title insurance underwriters and agents, property and casualty insurance providers, attorneys, etc. This would essentially allow the FRB to ignore Congress directives in the Dodd-Frank Act, a statute which the FRB claims to be consistent with, by regulating these exempt entities pursuant to the authority granted it under HOEPA.
The stay of the Rule was initially granted by Appellate Judges Karen LeCraft Henderson, David Tatel and Brett M. Kavanaugh, after Judge Beryl Howell denied NAMB's request for a temporary restraining order (TRO) against the LO compensation rule prior to its April 1st enforcement.
In its reply, NAMB further argues that the FRB's decision to regulate mortgage brokers, while effectively exempting creditors that control approximately 90 percent of the mortgage origination marketplace, was arbitrary and capricious.
NAMB feels that implementation of the Rule will irreparably harm the mortgage broker business and small business nationwide.
"When balancing the equities and the public interest, the Board [FRB] entirely ignores the potential harm that the Rule could cause consumers by decimating the mortgage brokerage industry," argues NAMB in its reply to the Court of Appeals. "The loss of these small mortgage brokers will leave a void in the mortgage industry and will directly result in less choices for the consumer."
NAMB feels the Rule restricts mortgage brokers who accept compensation from the consumer directly from paying their loan originator employees a portion of that compensation in the form of a commission. NAIHP argues that in formulating the LO compensation rule, the FRB based its conclusions entirely on the results of a survey conducted in 2008 by MACRO International Inc., titled "Consumer Testing of Mortgage Broker Disclosures."
In regards to the section of the LO compensation rule challenged by NAMB, it is noted that the FRB cannot escape its responsibilities under the Regulatory Flexibility Act (RFA) by referring to the Challenged Section of the LO compensation rule as an "insignificant consequence" and the FRB's failure to examine the effect, as well as any alternatives to the Challenged Section of the Rule as fatal to the FRB's claim that they are in compliance with the RFA.