The Federal Reserve’s loan officer compensation guidelines will have a perverse effect of denying consumers who comparison-shop for mortgages the opportunity to obtain a lower-cost mortgage says the Community Mortgage Banking Project.

The group makes its arguments in an amicus brief that challenges the regulations, which are due to take effect April 1.

“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.”

The CMBP joins a long list of other industry groups who also oppose the rule.  The National Association of Mortgage Brokers and the National Association of Independent Housing Professionals both filed lawsuits against the fed over the rule, but as of last week, it doesn’t seem like it will have much of an impact.

Scott Stern, Chairman of the Community Mortgage Lenders of America (CMLA), is also fully supportive of the CMPB’s brief.

“Consumers in the market for a new mortgage regularly comparison-shop to get the best price,” said Stern.  “Loan officers, especially those affiliated with independent community mortgage lenders, regularly reduce their compensation in order to discount the price of a loan to be competitive.”

“Rather than drafting rules focused exclusively on eliminating inappropriate compensation incentives for loan officers, the Fed ’s rule instead prohibits any variation in compensation to loan officers based on loans terms – even when it benefits the consumer,” Corso noted.