Fed Seeks Feedback on TILA Proposal

The Federal Reserve Board is now seeking public comment on a Truth in Lending Act proposal that could completely change the way most mortgage brokers and loan officers are compensated. The proposed rule pushes the industry toward paying originators a flat fee that is stated upfront and cannot be increased due to changes in the interest rate or changes to other loan terms. Consumers can still finance closing costs and origination fees, "provided this does not affect the amount the originator receives for the transaction," the Fed says. If finalized, the TILA proposal will "dramatically alter compensation for all mortgage originators, whether they are loan officers in retail operations or mortgage brokers," said Brian Chappelle, a mortgage banking consultant with Potomac Partners in Washington. Compensation based on loan volume, the performance of loans delivered by an originator or hourly wages is permissible under the proposal. The Fed is specifically seeking comment on whether it should allow compensation based on the loan amount, which is not an uncommon practice. The comment period on the 195-page proposal ends Dec. 24. The Fed also issued a separate TILA proposal that would create an entirely new disclosure regime for home-equity lines of credit and new safeguards for consumers. The comment period on the HELOC proposal also ends on Dec. 24.