Two broker trade groups filed their arguments in an appellate court Tuesday morning, hoping to stop the Federal Reserve Board's controversial rule on how loan officers are paid. A decision could come by close of day.
The Fed filed a 23-page motion Monday afternoon, asserting its right to promulgate compensation rules for both originators and loan brokers under the Truth in Lending Act in regard to 'creditor pay' and 'consumer pay' models. (Under the former, the loan broker is paid by the wholesaler; under the latter, the consumer pays the broker.)
The National Association of Mortgage Brokers, and National Association of Independent Housing Professionals in their filings claim: the Fed lacks the statutory authority to promulgate some of the rules; that the rules do not have a "rational basis"; and that the central bank failed to conduct a proper analysis on how the brokerage industry would be affected under the Regulatory Flexibility Act.
The LO compensation rule was slated to go into effect April 1, but an appeals court in Washington granted a stay to the broker plaintiffs after a U.S. District Court judge ruled for the Fed.
Under the rule, brokers cannot be compensated by both lenders and the consumer in the same transaction and cannot be paid based on the loan's terms and interest rate. (The rule also eliminates a broker's ability to make less money on a transaction while giving that cost savings over to the consumer as an incentive to close the deal with the broker.)
Arguments made by NAMB and NAIHP, to some degree, call into question the Fed's ability to regulate brokers because they are not legal creditors of the mortgagor. In their new combined motion to the appeals court, the trade groups say the Fed supported its LO comp rule by arguing yield spread premiums present a "significant risk" to consumers (the Fed's words). But NAMB and NAIHP note that the wholesaler, not the broker, controls the YSP.
NAMB/NAIHP say that the Fed's decision to regulate mortgage brokers, "while effectively exempting creditors that control 90% of the mortgage market was arbitrary and capricious."
The three-judge panel could continue the stay, lift the measure, or have the parties proceed to trial.
