WASHINGTON—The National Association of Independent Housing Professionals is giving up—for now—on its legal battle against the Federal Reserve Board to block the agency’s just-implemented loan officer compensation rule.
“Our board voted to withdraw the lawsuit,” said NAIHP president Mark Savitt. “There are other avenues we’re looking at pursuing.”
As for what those avenues may be, Savitt declined to comment.
Last month the NAIHP and National Association of Mortgage Brokers sued the Fed, asking for a temporary restraining order, and then a stay, to block the rule, which puts strict limits on how brokers can be compensated. The groups lost a round in Federal District Court in Washington, but were then granted a stay.
They subsequently lost when the Fed appealed and won, but have the option of filing new motions in the case.
Originally, their lawsuits were separate but were combined at the Fed’s request. As National Mortgage News went to press NAMB did not respond to questions about its plans. “I haven’t heard from them—and I don’t know what they’re doing,” Savitt said. The two organizations, both of which operate on small budgets with little in the way of staff, compete for members. (Savitt, a loan broker in West Virginia, is a past annual president of NAMB.)
The LO comp rule prohibits brokers from being paid on the rates and terms of a loan. Also, brokers cannot be compensated from both a wholesaler and consumer on the same transaction. But a chief complaint of the NAIHP is the Fed’s prohibition on brokers crediting certain costs to borrowers by giving up compensation—a maneuver that results in them earning less but gives them a competitive advantage over bankers.
Give-backs offer consumers an incentive to close with brokers, a tact that is no longer available to these third-party salesmen. “For the consumer, their costs just went up immediately,” said Savitt.
The new comp rules are also causing headaches for wholesalers. Just after NAMB and NAIHP lost their court challenge, Southern Trust Mortgage Co. of Virginia Beach told its loan brokers that it would exit the channel, citing what it calls “increasing compliance implications” tied to the Fed rule.
Instead of funding mortgages through loan brokers, STMC will concentrate solely on retail production. At press time, company officials could not be reached for comment. (Its intention to exit the wholesale channel was mentioned in a letter issued to its broker partners.)
STMC apologized to its brokers for “any inconvenience” its departure might cause, but said its decision was driven by the “ongoing regulatory uncertainty surrounding the third-party-originated business.”
