Wells Fargo Home Loans is telling its correspondent lenders and brokers they cannot vary the compensation they pay their loan officers based on the mortgage product.
In a "Newsflash" to third-party correspondents, Wells says compensation cannot be "based on product type — FHA vs. conventional, construction vs. permanent."
The giant mortgage lender cites "uncertainty" about the Federal Reserve Board's new LO compensation rule that went into effect April 6 for its decision.
Wells is the nation's largest wholesale funder and second largest correspondent buyer of home mortgages, according to figures compiled by National Mortgage News.
Under the LO rule, compensation cannot be based on a term or condition of the loan. Creditors that vary compensation by product type, according to Fed attorneys, will have to prove the higher compensation for a FHA loan is not a "proxy" for a term or condition.
"Wells Fargo remains concerned about the viability of proving compliance, even in instances where a variation of time and effort of the loan originator can be established," the company says in the April 14 Newsflash.
Wells Fargo is applying the same compensation policy to its own loan officers and to mortgage brokers, according to company spokesman Tom Goyda.
Attorney Robert Lotstein said Wells Fargo is justified in taking a conservative position. "We have advised our clients to be as vanilla as possible coming out of the gate," said the managing attorney of LotsteinLegal.
"The Fed has been really clear that the ones determining the legality or permissibility of plans and policies will likely be the judiciary" and class action attorneys, Lotstein said. His firm has offices in Washington and Atlanta.
