The Federal Reserve Board's loan officer compensation rule will "destroy" mortgage brokers and small businesses, declared Roy DeLoach, chief executive of the National Association of Mortgage Brokers.
Speaking at the Northeast Conference of Mortgage Brokers in Atlantic City Tuesday, he explained that the trade group, at first, thought the rule was workable -- but no longer.
He compared it to sailboat racers getting the angles on the competition; the rule, he said, gives those angles to other larger mortgage distribution channels.
The trade group chief argued that the Fed does not understand the mortgage business at all in terms of competition. In attendance at the show were loan brokers, wholesalers, and third-party vendors, among others.
The Fed rule prohibits broker compensation that is based on the terms of the loan, such as interest rate or prepayment penalties. But the rule does not prohibit yield spread premiums. Still, brokers won't be able to increase their compensation by raising the interest rate on the loan.
Interpretations of Fed rules vary, but it seems the broker's fee must be established upfront and cannot increase because of changes in the loan terms.
"Creditor payments to brokers based on the interest rate give brokers an incentive to provide consumers loans with higher interest rates," the Fed said in the final rule and staff commentary.
Another area of contention for DeLoach is the steering provision in the rule which NAMB believes singles out mortgage brokerage companies, but not other origination entities.
He asked why mortgage brokerage firms are treated differently from mortgage banking companies. "Companies don't steer, people steer," he said.
