The Federal Reserve Wednesday afternoon issued long awaited written guidance to help small businesses — including loan brokers — comply with its loan officer compensation rule that goes into effect April 1.
The four-page guidance provides examples of how a creditor can pay a loan originator or mortgage broker "1% of the credit extended for each loan, but no less than $1,000 and no more than $5,000."
However, the Fed says a creditor (a wholesaler) cannot pay an LO 1% for principal amounts greater than $300,000, and then 2% for loan amounts that might fall between $200,000 and $300,000.
The Fed also clarifies that the LO can increase the interest rate to generate a larger yield spread premium (YSP) to cover upfront closing costs, "as long as any creditor-paid compensation retained by the originator does not vary based on the transaction's terms or conditions."
Industry trade groups, including the Mortgage Bankers Association and National Association of Mortgage Brokers, have been urging the Fed to provide written guidance. Up until recently, Fed staffers provided only verbal guidance. The Small Business Administration also weighed in and urged the Fed to provide written guidance for small mortgage brokerage firms.
The Regulation Z "Compliance Guide for Small Entities" is posted on the Fed's website on the "Regulations" page.
