The reality of loan officer compensation

The Federal Reserve’s new loan officer compensation rules were to take affect yesterday, April 1, 2011. However after a lawsuit was filed by the National Association of Mortgage Professionals (NAMB) and the National Association of Independent Housing Professionals (NAIHP) that was shot down by a Federal judge the United States Court of Appeal put a stay on the implementation of the new regulations until they could more closely be examined.

Of course, at the basis of the issue is the fact that the Federal Reserve pushed-through this law without due process of law, and it just gets worse from there.

The Federal Reserve’s loan officer compensation rules will increase borrower’s costs and reduce their ability to shop around for the best rate and lowest fees.

The basis of the law is just: Protect the consumer from being ripped-off when buying a home or refinancing. The Fed feels that independent mortgage loan officers make too much money, and have done so through screwing home owners by steering them into loan products that pay the loan officer more, such a subprime loans. This of course ignores the fact that the majority of subprime mortgages were originated directly by the big banks and lenders such as Countrywide, not the independent loan officers working at small brokerages.

Of course, on top of that those types of loans are now gone and are no longer an issue.

The truth is that 90% of Utah mortgage loan officers make less than $54,000 a year. They are not the millionaires the big banks would have you believe (as channeled through the Federal Reserve and to the media). In fact the median income for a mortgage loan officer in Utah is $45,000.

Under the new Fed rule that dictates how mortgage loan officers at independent mortgage companies can be paid that figure would be cut by 35% to 50% while loan officers at the big banks are being paid along the same compensation plans they always have.

Also, under the new Fed rule the loan officer is no longer able to pay all or part of the borrower’s closing costs, so lender credits to make it so the borrower doesn’t have to bring in any additional money at closing, no-fee loans and streamline refinances is a thing of the past.

You as a borrower will have to pay for any additional charges that come-up at closing like credit supplements, credit repair fees or higher than anticipated pay-offs of your current mortgage or when a Realtor doesn’t negotiate enough seller concessions. For instance I  recently paid $800 of a borrowers closing costs out of my commission so they would only have to bring their down payment to the closing table.

Overall the Fed rule is a case of those making the rules have no idea about what they are making rules for.

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