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MBA presses Fed on loan officer compensation rule

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The Mortgage Bankers Association said a final rule on loan officer compensation is too vague and the trade group is asking the Federal Reserve Board to provide written guidance. Without such guidance, lenders likely will take a very conservative interpretation of the current guidance, which could lead to higher home loan costs for consumers, the MBA said. The letter, sent to Fed Chairman Ben Bernanke and Fed Director of Consumer and Community Affairs Sandra Braunstein, asks the central bank to help the mortgage industry’s compliance. The final rule was published in September, and lenders are required to comply by April 11. “The rule is far-reaching and requires major changes to long-operating compensation practices that heretofore have been both legal and prevalent,” the MBA said. “Unfortunately, in our view, the rule does not definitively address many matters of particular importance, and has engendered numerous questions from creditors and loan originators seeking to comply.” The rule prohibits basing compensation to a loan originator on a loan’s terms or conditions, subject to a limited exception for loan amount; compensation to a loan originator from both the consumer and a party other than the consumer for the same transaction; and an originator from steering a consumer to receive greater compensation. The MBA said its staff held several meetings with Fed officials to seek more clarity, but said that verbal guidance isn't enough. Earlier this week, the MBA and six other trade associations filed "friend of the court" brief in a U.S. district court, opposing a Department of Labor interpretation that would require mortgage companies and other banks to apply overtime regulations to loan officers. In its letter to the Fed, the MBA noted while it appreciates that Fed staff have been available to respond verbally and in person to questions from the MBA and its members, verbal guidance in itself is insufficient. "The rule was issued pursuant to the board’s authority to prohibit unfair and deceptive acts and practices and its violation can lead to substantial civil liability, criminal penalties and administrative sanction," MBA said. "In recognition of the significant potential liability under the Truth in Lending Act, Congress shielded from liability, creditors that in good faith follow board or official staff interpretations. Lenders and investors, therefore, are wary of proceeding without written direction," the MBA said. "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," the letter said. Write to Kerry Curry.

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