Mortgage Brokers Win Bid to Block Federal Reserve Loan Commissions Rule

Two trade groups representing mortgage brokers won an appeals court ruling temporarily blocking a Federal Reserve rule that limits commissions for loan officers in mortgage transactions from taking effect today.

The U.S. Court of Appeals in Washington granted emergency motions from the National Association of Mortgage Brokers and the National Association of Independent Housing Professionals which argue the rule unfairly penalize brokers, who won’t be able to pay loan officers from consumer-paid fees.

“The purpose of this administrative stay is to give the court sufficient opportunity to consider the merits of the motions for emergency relief and should not be construed in any as a ruling on the merits of those motions,” the court said in its order yesterday.

U.S. District Judge Beryl Howell on March 30 rejected the groups’ request to stop the provision from taking effect, finding that public policy interests outweighed harm to the mortgage-broker industry.

“The board has reasonably concluded that the rule will further public policy interests, a position that is further supported by the Dodd-Frank Act, which also includes provisions restricting certain loan-compensation practices,” Howell said in a 46-page opinion, referring to the law that overhauled the financial industry last year.

The trade groups filed separate lawsuits and appeals challenging the regulation.

Mortgage Finance Weaknesses

The Fed rule, part of the central bank’s effort to fix weaknesses in mortgage finance, is aimed at preventing mortgage originators from receiving more compensation for selling home loans with higher interest rates.

Susan Stawick, a spokeswoman for the Federal Reserve, didn’t immediately respond to an e-mail message seeking comment after regular business hours yesterday.

Marc Savitt, president of the National Association of Independent Housing Professionals  http://www.naihp.org/home  , said “We’re glad the judges issued the stay.”

“Once they have the opportunity to review the entire case, we think they’ll agree with us that the Fed did not have the authority” to issue the rule,” Savitt said.

Mike Anderson, government affairs chairman of the National Association of Mortgage Brokers, also welcomed the decision.

“If we win this it will be a victory for consumers,” Anderson said.

The Dodd-Frank law, the most sweeping overhaul of financial regulation since the 1930s, created a new Consumer Financial Protection Bureau that must also write regulations to prevent loan officers from steering customers into costly loans.

The cases are National Association of Mortgage Brokers v. Board of Governors of the Federal Reserve System, 11-5078 and National Association of Independent Housing Professionals Inc. v. Board of Governors of the Federal Reserve System, 11-5079, U.S. Court of Appeals for the District of Columbia (Washington).