Tomorrow marks the implementation of the Loan Originator Compensation and Anti-Steering Rule. This interim rule was announced last August and was designed to protect the borrower by preventing loan originators from directing or steering a borrower to a loan based the compensation that the loan originator would receive for that transaction.
Although it has created widespread confusion and controversy over the past several weeks, it is poised to go into effect on April 1 effect tomorrow, April 1, and this is no April Fool’s joke!
The Fed Rule will:
- Prohibit payments to the loan originator that are based on the loan’s interest rate or other terms. Compensation that is based on the loan amount is permitted.
- Prohibit a mortgage broker or loan officer from receiving payments directly from a consumer while also receiving compensation from the creditor or another person.
- Prohibit a mortgage broker or loan officer from “steering” a consumer to a loan with less favorable terms in order to increase the broker’s or loan officer’s compensation
- Provide a safe harbor to facilitate compliance with the anti-steering rule. The safe harbor is met if:
- The consumer is presented with loan offers for each type of transaction in which the consumer expresses an interest (that is, a fixed rate loan, adjustable rate loan, or a reverse mortgage); and
- The loan options presented to the consumer include the following:
- the lowest interest rate for which the consumer qualifies;
- the lowest points and origination fees, and
- the lowest rate for which the consumer qualifies for a loan with no risky features, such as a prepayment penalty, negative amortization, or a balloon payment in the first seven years.