Stay Lifted from Loan Originator Compensation Rules

The U.S. Court of Appeals for the District of Columbia Tuesday lifted a stay on the implementation of the Federal Reserve’s Regulation Z Loan Originator Compensation final rule, a stay that, effectively, lasted two business days. The stay was originally ordered on March 31, 2011 as an emergency measure while the court considered requests from the National Association of Mortgage Brokers and National Association of Independent Housing Professionals. The court ultimately rejected the lawsuit and the organizations’ request to have the rules suspended.

The brief court order dated April 5 states: “Upon consideration of the emergency motion for expedited relief and the emergency motion to stay implementation of final rule pending appeal, the response thereto, and the reply, it is ORDERED that the administrative stay entered on March 31, 2011, be dissolved.” This means that these rules are now effective.

This lawsuit connected to the Fed rules has nothing to do with the SAFE registration process for mortgage loan originators. Instead, it is a new rule set to come into effect today and applies to closed-end consumer credit transactions that are secured by a dwelling.

The Fed’s final rule prohibits payments to loan originators, including mortgage brokers and loan officers, based upon the terms or conditions of the loan such as the interest rate. The rule would also prevent loan originators from being paid more compensation if the borrower accepts an interest rate higher than the rate required by the lender. This is commonly referred to as a “yield-spread premium.”

The practice of “steering” consumers towards loans that are not in their best interest to increase a loan originator’s compensation would also be banned under the rule.

Loan originators would still be permitted to receive compensation that is based on a fixed percentage of the loan amount, however.

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Posted in Compliance.