The Gravy Train is Over Soon
THE END IS NEAR!
Just when you thought that it was safe to go back in the water…
Today the Federal Reserve Board announced the final rule on loan originator compensation practices. These rules are effective April 1, 2011, to provide lenders and originators time to develop new business models, implement necessary changes to their systems, and train personnel. The final rules, which apply to closed-end loans secured by a consumer’s dwelling (a/k/a: conforming mortgages), will:
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Prohibit payments to the loan originator that are based on the loan’s interest rate or other terms (e.g. rebate). Compensation that is based on a fixed percentage of the loan amount is permitted.(e.g. origination points)
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Prohibit a mortgage broker or loan officer from receiving payments directly from a consumer while also receiving compensation from the creditor or another person. (e.g. a little rebate and a little points)
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Prohibit a mortgage broker or loan officer from “steering” a consumer to a lender offering less favorable terms in order to increase the broker’s or loan officer’s compensation.
What does this mean? Mortgages are going to get a lot more expensive if we (as loan originators) can’t get paid by rebate from the lender. It will mean that, in order to be compensated, we will have to charge points.
Brokers and bankers have been fighting these changes because they obviously hurt the consumer. For example, according to the Mortgage Bankers Association, a mortgage today, after new regulations to limit costs tot he consumer, costs 36% more than it cost last year. Oops, something went wrong.
A chunk of this additional cost is due to the Home Valuation Code of Conduct which was intended to weed out appraisal fraud and make appraisals more cost effective. Recent findings by the FBI indicate that appraisal fraud has increased AND appraisals cost at least 25% more because of increased regulation and disclosure.
Not only have new regulations increased loan documentation and the cost and timing of underwriting and appraisal, but now these new regulations appear poised to significantly increase the cost of getting a loan. With rates lower than ever imagined, it is time to buy or refinance; I can guarantee that it will be more expensive next year.
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I am available every weekday to respond to your mortgage-related requests in my office in the Casita Building, or nights and weekends by phone
andrew hoffman
mortgagepartners/santa fe
505.629.4161
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