Premiere Mortgage Services Inc. - Dana Bain

In news that can only continue the existing market confusion, harm consumers, increase costs and create financial backlash on small business, U.S. District Court Judge Beryl A. Howell http://judgepedia.org/index.php/Beryl_A._Howell , denied both NAIHP and NAMB's request for a temporary restraining order and preliminary injunction relief in their attempt to delay the April 1, 2011 implementation of the Federal Reserve Board's originator compensation rule.

To summarize, the Federal Reserve Board has created a rule that will raise the cost to consumers for obtaining a mortgage and possibly put us out of business. This is not a bill or a law that would have had to be voted on by our elected Politicians. The Federal Reserve Board has the power to create a rule without votes and apparently without regard to the unintended consequences that such a rule will create.

There are 2 areas within the rule that garner the most concern. The stated purpose of the Federal rule (that amends Regulation Z) is to “protect consumers from unfair/abusive mortgage lending practices” by prohibiting steering consumers into high cost and harmful loans for monetary gain (no argument here) and to restrict loan originator compensation by prohibiting a loan originator from receiving a commission. This is a serious problem. Although nobody likes to be taken advantage of when borrowing large sums of money, the method by which the Fed is attempting to remedy that problem is damaging to small business owners and consumers.

Under the rule, a loan originator may either receive a salary or hourly rate but not a commission. Let’s think about what this really means. Pretend you are the owner of a small mortgage brokerage company and you have 5 loan originators. Currently, you pay your loan originators a commission based on their production. If they close loans, they get paid and if they don’t close loans, then they receive no commissions. Seems logical right? This same commission model exists across a vast amount of businesses – realtors, insurance agents, financial advisors, etc. Almost any sales job works well with a commission based model. So why would the Fed prohibit commissions to be paid to a loan originator? Because the Fed believes that the consumer is too confused, inexperienced, and unable to understand what they’re paying for and cannot protect themselves from being financially harmed in a mortgage transaction (this is not my opinion the Fed actually put this in writing in their commentary on the rule itself!).