With loan brokers afraid of getting squeezed by new compensation rules, one industry consultant sees a way they can collect reasonable origination fees and stay competitive: by getting borrowers to pay them directly.
Consumers can pay the broker's fee in cash (out of pocket) or through the proceeds of the loan under the new Truth in Lending Act rule, which goes into effect in April. However, the broker cannot receive additional compensation from the lender or any other source under the Federal Reserve Board rule.
Potomac Partners founder Brian Chappelle points out that it is permissible to raise the loan amount to pay the broker's fee.
"For example, it is permissible for the borrower to increase the loan-to-value ratio from 60% to 62% to pay the mortgage broker," Chappelle told National Mortgage News. "Of course, the lender or any other party could not pay the broker anything."
He noted this would work in refinancings where the borrower has equity.
Meanwhile, the lender/wholesaler could charge a yield spread premium to cover origination and closing costs.
