In their initial response to the lawsuits against the Loan Originator (LO) Compensation rule filed in U.S. District Court for the District of Columbia, the Federal Reserve (Fed) states that the plaintiffs, the National Association of Mortgage Brokers (NAMB) and the National Association of Independent Housing Professionals (NAIHP) have failed to show just cause for their claims and, therefore, requests for relief should be declined.
In response to the claim that the Fed overstepped their authority in putting forth the rule on LO Compensation, the Fed outlined that the rule was promulgated under the authority provided to them in the Truth in Lending Act's (TILA's) Section 129(1)(2) that grants their authority to put forth regulations "too prohibit unfair or deceptive acts or practices in connection with mortgage loans." Additionally, Section 1403 of the Dodd-Frank act, expressly amends section 129B(c) to provide for restrictions related to LO compensation.
The filing by the Fed provides a history of the development of the compensation rule, indicated that it developed from a desire to address consumers general lack of knowledge about the relationship between interest rate and yield spread premium (YSP) in shopping for a mortgage. It states that this is exacerbated by the fact that a very low percentage of consumers will shop for a mortgage from more than one mortgage broker.
The Fed's argument states that the lawsuit has not demonstrated the necessary components to support a temporary nor permanent injunction against the rule. In looking at the NAIHP suit, which targeted the entire rule, the response claims that the NAIHP has failed to demonstrate any imminent, actual economic loss of any severity, calling their claims speculative. The response states that although the rule may lead to some economic loss, they fail to address whether that loss could be made up in other ways. The repeated theme in the filing is that any harm described by the plaintiffs failed to reach the level of "imminent and irreparable economic harm."
Turning to NAMB, which targeted specific dual compensation sections of the rule, the filing states that "NAMB's affidavits simply do not address that reality." The Fed argues that the rule is based directly from the language in the Dodd-Frank Act, so the restriction against dual compensation would become effective under that legislation with or without Fed's rule. They also further the line that changing the methodology for how originators and brokers are compensation does not, on its face, amount to severe economic harm.
The Fed's response seeks to deny the plaintiffs request for a temporary or permanent injunction against the rule because the they have failed to demonstrate or substantiate any violation of regulatory authority or potential harm to those represented by the plaintiffs. It highlights the requirements under TILA and Dodd-Frank Act to protect consumers and make sure they have access to clear understandable disclosures regarding their requests for credit.
The response even goes so far as to provide the court with a draft court order for judge to deny the applications for a temporary restraining order and preliminary injunction.
A ruling from the court on the temporary restraining order could come sometime next week. The Fed's strong response makes it very clear that. outside a court order, they have no intention of delaying the implementation date of April 1 for the rule.