The Community Mortgage Banking Project (CMBP), with the support of the Community Mortgage Lenders of America (CMLA), filed an amicus brief arguing that the new Federal Reserve Board (Fed) will have "the perverse effect" of denying consumers the opportunity to obtain a lower cost mortgage.
By filing an amicus brief, also known as a "friend of the court" brief, an entity that is not directly related to a lawsuit is able to submit supporting information to the court that a judge can consider in ruling in a case.
“The Fed rule was supposed to address the issue of loan officers who raise the cost of a mortgage in order to increase their compensation,” said Glen Corso, managing director of CMBP. “But it has ended up depriving loan officers of the ability to discount the mortgage rate to the consumer and absorb the cost of that discount by reducing their compensation. That’s a competitive choice and what a healthy market is all about. Independent community mortgage lenders want to be able to vigorously compete on cost, but in a bizarre twist of poorly conceived regulation, the Fed rule prevents that."
Scott Stern, Chairman of the CMLA, agreed stating the CMLA fully supports the CMBP's perspective that current pricing options provide more competition resulting in better pricing for consumers that comparison shop in the current marketplace.
The brief also raises concerns that the new rule limits bank-affiliated lenders from paying incentives or different compensation structures for loans that are more complex or difficult to originate. “Rather than drafting rules focused exclusively on eliminating inappropriate compensation incentives for loan officers," Corso added, "the Fed ’s rule instead prohibits any variation in compensation to loan officers based on loans terms – even when it benefits the consumer.”
After being granted a motion to consolidate the lawsuits filed by NAMB and the NAIHP, the Fed filed their initial response with the court on March 18th. U.S. District Court Judge Beryl Howell has yet to schedule a hearing.