House Passes Resolution to Dictate Mortgage Loan Officer Pay, Compliance
A House Resolution (HR), passed on Capitol Hill (pictured above), added a series of provisions to the Senate's Wall Street Reform and Consumer Protection Act, including guidelines that dictate origination fees policy and holds individual loan officers accountable for compliance with the new law. The legislation is also creating concern in the industry about potential negative, unintended consequences its passage may bring. According to a release from the House Financial Services Committee, HR 4173 dictates that mortgage compensation can only be financed if all originator compensation is paid by the borrower and not third parties. The borrower also has to pay the entire fee by financing it. The resolution also permits "compensation through rate" for all mortgages as long as they meet the borrower fee financing provision. Previously, the House version of the legislation only allowed this for so-called "qualified mortgages," those loans that conform to guidelines for purchase by federal agencies and the government-sponsored enterprises (GSEs), while the Senate version applied to all mortgages. Mortgage bankers are closely monitoring the ever-changing financial reform legislation, Scott Norman, president of Texas Mortgage Bankers Association (TMBA) told HousingWire. "We have a lot of members that are very concerned, and loan officer compensation is at the top of our list," he said. Norman said he personally, and the TMBA, are advocates of transparency and making sure borrowers not only get a fair deal, but understand the terms of their mortgage. But, he warned that restricting yield spread premiums (YSPs) and limiting how much a loan officer can make would impact lenders' ability to attract and retain qualified loan officers on their staffs. The passage of HR 4173 comes as the House and Senate continue the reconciliation process of each body's financial reform legislation before it is sent to President Obama for signature. The compensation rules brings both versions in-line with each other, ensuring it will be included in the final version of the legislation. Another component of the resolution makes mortgage originators, including individual mortgage brokers and loan officers, subject to damages for violations of the legislation. If the broker or loan officer violates the compensation restrictions, isn't properly registered, or violates regulations prohibiting conflicts of interest (so-called "anti-steering" guidelines), individuals can be fined up to three times their originator compensation. Norman said holding individual officers accountable will "absolutely, positively" add another layer of compliance, legal issues and cost to the mortgage origination process, because as he put it: " No mortgage lender, of any size, is going to let a loan officer bring down the entire company." But that added cost could eventually price small lenders and mortgage brokers out of the business. "These are all great ideas, and I applaud Congress for trying to make amends, but trying to do too much too soon, without letting the smoke clear, you start worrying about the unintended consequences," Norman said. "If you start adding more and more regulation, whatever you think you save the borrower, they're going to pay it back in higher interest rates and higher legal fees." These new rules, if signed into law, would open the door for originators to expend capital and time re-training employees, as loan officers continue to navigate new policies implemented by changes to the Real Estate Settlement Procedures Act (RESPA). The resolution's passage comes as the House passes separate legislation to reform the Federal Housing Administration (FHA). Write to Austin Kilgore.