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Don Maher's Blog

By Don Maher | Mortgage Broker
or Lender in Los Angeles, CA

Higher Loans Cost After April 1, 2011???

Once again, the Federal Government is attempting to “fix” something that is not broken. The new Loan Originator Compensation rule will likely have the same benefit to today's consumer that HVCC had - higher loan costs.  Below are the highlights on the final rules on Loan Originator Compensation and Steering.

The new rules apply to all persons who originate loans, including mortgage brokers and the companies that employ them, as well as mortgage loan officers employed by depository institutions and other lenders.

The final rules, which apply to closed-end loans secured by a consumer's dwelling, will:

  • Prohibit payments to the loan originator that are based on the loan's interest rate or other terms. Compensation that is based on a fixed percentage of 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 lender offering 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:
  1. the lowest interest rate for which the consumer qualifies;
  2. the lowest points and origination fees, and
  3. 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.

While it sounds like something that will benefit the borrower, it will raise loan costs, especially for states where the average loan size is low.  The new rule also does not allow the lender to credit the borrower for any closing costs! So you can say goodbye to many of the "no cost" refinance progrmas out there.  The final rules are effective April 1, 2011, so get your clients loans submitted as soon as you can.

For more information, log on to www.DonMaher.com  or call (800) 736-0565.


By Paul W,  Mon Mar 7 2011, 15:03
How would this raise loan costs? I don't understand the conclusion you're making. Everything except that sentence speaks to good benefits for borrowers.
By Don Maher,  Tue Mar 8 2011, 14:54
Hi Paul:

With limitations being put on lender paid compensation, specifically not allowing a hybrid of borrower paid and lender paid compensation, many companies will be moving to the borrower paid compensation plan, where the borrower will get a slightly lower rate, but will have to pay loan origination points and fees. That will not always be cost effective for the borrower.

The new plan also does not allow a company to credit a borrower any closing costs with their lender paid compensation, thus ultimately eliminating "no cost" refinances. Most of my refis are no cost loans. On a 300k loan, if i would get 2% lender compensation, I would credit the borrower the 3rd party closing costs of $2500, and make $3500. This would allow the borrower to refi again if rates drop, even if its only by .5%. That is no longer an option if there are too many LLPA's on a loan.

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