In an 18 page legal filing, the National Association of Mortgage Brokers (NAMB), has filed a lawsuit seeking to delay and permanently stop the implementation Loan Originator Compensation rule due to take affect on April 1, 2011.  Filed in the U.S. District Court for the District of Columbia, the suit names the Board of Governors of the Federal Reserve System (Fed), Board Chairman Ben Bernanke and Director of Consumer and Community Affairs Sanda Braunstein as defendants.

First reported by National Mortgage Professional Magazine, the lawsuit by NAMB challenges sections of the rule related to closed end credit transactions.  "Specifically, NAMB challenges the implementation and enforcement of the section of the Rule which prohibits a mortgage broker from paying its loan officers a commission in a specific loan transaction ('the Challenged Section of the Rule')."  NAMB believes that the Rule's restrictions will cause NAMB and its members "immediate, devastating and irrevocable harm."


The lawsuit claims that in putting forth the restrictions on LO compensation, the Board failed to have a factual basis and did not appropriately consider the irreparable harm that the Rule would have on mortgage brokers, individual loan officers, the mortgage broker industry and the consumer.  Accordingly, certain exemptions for creditors (i.e. banks and lenders) provides an unfair competitive advantage without a reasonable basis for distinguishing between creditors and brokers.  NAMB believes that the actions by the Fed were arbitrary in nature and exceeded their authority pursuant to the Truth in Lending Act.

The result of the Rule, the lawsuit states, will severely impact the mortgage broker industry and consumers.  NAMB noted that many mortgage brokers are small business that do not have the capacity to pay loan originators a set hourly wage or salary due to the variance in loan size and loan volume.  The filing suggests that allowing the Rule to be implement in its current form will lead to the extinction of mortgage brokerage companies due to:


  • LOs leaving for competitors
  • Mortgage Brokers to cease operations
  • Diminishment of Wholesale lender operations
  • Reduction of healthy competition in the mortgage industry
  • Less loan options for consumers

Citing three counts for challenging the implementation of the rule, the lawsuit seeks relief from the court by:

  • Providing a temporary and preliminary injunction enjoining the Board from enforcing the Challenged Section of the Rule - while the court considers the legality
  • Declare the Challenged Section unlawful and void
  • Provide a permanent injunction prohibiting the Board from implementing the Challenged Section of the Rule
  • Award plaintiff, NAMB, costs and reasonable attorneys' fees

NAMB's filing is the second lawsuit filed this week challenging the Rule.  Earlier in the week, the National Association of Independent Housing Professionals (NAIHP) filed a separate action seeking to stop implementation of the Rule.

The Fed, however, has demonstrated their intention to proceed as planned with the implementation of the rule by scheduling a compliance webinar on March 17th to help clarify the Rule's requirements for the mortgage industry.