Are you ready for the Fed Rule?

BJ Bounds

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.

For more information on the Fed Rule and how it affects you, visit our Originator Compensation page or check out the information posted on the Federal Reserve website.

3 Responses to Are you ready for the Fed Rule?

  1. Sue says:

    Hi I have a question regarding your Q & A answers to the Webinar you had on Originator Compensation. We are a bank. We close in our name, fund with our money and then sell off to the investors the loan. So we do get srp’s. We have loan officers that are w2..If they have taken the loan with a origination point this point and all fees get paid to the bank. The loan officer will get compensated by the bank in either a split of the SRP and/or the volumne of loans. The two questions below and answers confuse me.

  2. Sue says:

    Question # 8
    I am with a bank that funds then sells their loans to investors. I know they are a creditor and I am a loan originator but I am still confused on how we benefit more than a bank or broker who does not fund their loans? It is not a benefit issue as much as it is a coverage issue. The guidelines covering originators working for creditors are applied differently than originators working for mortgage brokers.
    Question #3 under Banker Applications
    I’ve been told that Bankers have a way out with these rules. Is that true, or are they affected as much as brokers are? Not true. It is not a bank versus broker issue. It is a creditor versus originator issue. Originating employees of depositories are covered just like originating employees of any other creditor or broker. All mortgage companies are affected.WE ARE NOT A DEPOSITORY JUST A MORTGAGE BANK ALSO THIS NEXT QUOTE IS REALLY CONFUSING….
    Can there be dual compensation if you are a creditor? Collect 1 pt, have 0.5% margin built in and pay your LO on all loans 1.25%? Creditors are not covered by the Rule, except that they cannot pay originators in violation of the Rule. CREDITORS ARE NOT COVERED…SO DO I HAVE TO FOLLOW THIS RULE OR NOT….

    • CalyxCorner says:

      Hi Sue. Your question is more about how to apply the federal rule to your company rather than one of how to use the fields in Point. Although we offered the webinar and resource page to our customers, the presenters were not Calyx employees and unfortunately, we do not have the legal expertise to answer your questions on compensation. I would recommend you speak with legal counsel or perhaps contact Abacus Training for assistance.

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