A new Federal Reserve rule that takes effect April 1 is expected to lead to lower costs for borrowers, but some experts say it’s going to hurt the mortgage industry.
Under the new rule, borrowers who get their mortgages through brokers likely will pay less for services and brokers will be required to offer borrowers the lowest possible interest rate and fees that they qualify for. Most banks and other direct lenders, including some mortgage companies that operate like banks, are exempt from the rule.
The new Federal Reserve rule--the “Loan Originator Compensation amendment to Regulation Z”--is to help prevent borrowers from being steered into high-cost or risky loans.
Mortgage brokers used to earn more money on a loan the higher the interest rate and points. But the new rule covers how a loan originator is paid, setting a fixed commission and no longer tying the amount to the loan terms.
Some in the mortgage industry aren’t happy with the new rule, saying it makes mortgage brokers less competitive against the big banks.
“I will now get paid the same amount to process a plain-vanilla loan as I will a complex loan of equal size that requires more work,” says Mark Yecies, an owner of SunQuest Funding, a mortgage broker and lender in Cranford, N.J.
Officials with the National Association of Mortgage Brokers also have expressed concerns, saying the rule would likely put a lot of independent brokers out of business.
Source: “New Fed Rule for Mortgage Brokers,” The New York Times (Feb. 17, 2011)