U.S. mortgage brokers fail in bid to stop Fed rule

By Reuters
Posted March 31 at 11:46 a.m.

U.S. mortgage broker groups failed in an 11th-hour push to block a Federal Reserve overhaul that will limit a type of compensation that became controversial during the housing boom.

The industry warned that the new rules would further thin its ranks and limit credit for consumers.

U.S. District Court Judge Beryl Howell for the District of Columbia on Wednesday denied the National Association of Mortgage Brokers’ request for a temporary restraining order before April 1, when new compensation rules will take effect, the NAMB said.

The Fed rule is meant to protect consumers from abusive practices by eliminating the so-called yield spread premium, a form of compensation for brokers that can rise based on the interest rate. This gave brokers the incentive to steer customers toward high cost products, according to the Fed and other regulators.

But brokers assert new rules prohibiting payments based on the loan’s interest rate or other attributes will put them at a deep disadvantage to bank retail lending. If a bank lowers a rate on its retail side, brokers say they will not have the flexibility to match the price by cutting their own fees.

“That was shocking to us in hearing this decision,” said Mike Anderson, president of Louisiana-based Essential Mortgage and head of government affairs for the NAMB. The NAMB is working on an appeal, he said.

The National Association of Mortgage Brokers filed a lawsuit against the Fed on March 9, arguing the rule could be a death knell to small mortgage brokers, and limit credit to consumers. The National Association of Independent Housing Professionals also asked for a restraining order and preliminary injunction.

Ranks of mortgage brokers have already been sharply depleted since the housing boom as banks reduced reliance on the “wholesale” channel, in favor of their retail operations. Banks have blamed mortgage brokers for delivering faulty loans, while brokers claim they were merely selling the products offered by the lenders.

“This is great for the big banks,” said Anderson, who estimated broker-related employment has dropped about 30 percent from the peak of the housing boom.

Essential Mortgage may stop initiating loans below $75,000 because they won’t produce enough revenue under the new rules, in which loan officers receive a flat percentage fee from lenders, Anderson said.

The Fed in an earlier response to the brokers’ lawsuit acknowledged that consumers can benefit if brokers use their fees to cut closing costs, and therefore win business. But it concluded that consumers are generally not able to police the market to be sure that happens.

“Although NAMB’s demonstration that its members face substantial irreparable harm is compelling, the court must consider the plaintiff’s harm against both the public interest furthered through the rule, Judge Howell said in the decision.

The Fed also said brokers would soon have to conform to the Dodd-Frank Act that prohibits the same type of commissions. But those regulations would likely be less onerous, Anderson said.

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  1. Jeff Johnson March 31 at 1:49 pm

    You can thank her and Barney Frank, Dodd, and Obama. Mortgage rates are now automatically .375 higher and fees up 15% due to this new law. Consumers like us will pay more. A terrible ruling for all of us.

  2. Dee March 31 at 3:25 pm

    Yep, all these rules is costing us consumers more and more and more in the form of higher appraisal costs due to the management companies that are charging ridiculous fees not to mention most of them are owned by the bank that uses them (ie. Bank of America and Landsafe ) plus all the increased fees to cover the management of all of the new laws. Loan officers at a brokerage firm must disclose the total amounts of money that they make on a loan including the processing fee if any the day that they give you the Good Faith Estimate and that amount can never change unless you maybe increase or decrease your loan amount. What the average consumer DOES NOT know is that loan officers that work at banks make what is called SRP which is almost identical to the (Yield Spread Premium) YSP brokers make EXCEPT you have NO CLUE how much that bank gets on SRP which is tied to the rate they give you and guess what????? The bank can make $10,000 on you and you’re none the wiser. You may think you are getting an awesome deal when all the while the bank just absolutely took advantage of you. Yeah, that’s fair!!! Stop bashing the hard working broker and put the blame where it belongs ~ BIG BANKS trying to squash the brokers and the government so eager for that to happen….Yeah, one more thing brokers are licensed with background checks, credit checks and rigorous testing these days and loan originators that work at banks DO NOT NEED TO BE.. How’s that for scary… So much for a free market society.!!!

  3. Mona Baggs March 31 at 4:59 pm

    Geesh, the government is supposed to guarantee that a profitable business is always profitable no matter what, even if it means ripping off the consumer. Thanks Obama :(

  4. Herpaderp March 31 at 5:23 pm

    I see reading comprehension is at its usual level today

  5. Andrew A March 31 at 6:40 pm

    Mona….you are ill-informed. Now go get your entitlement check….you bum

  6. Durka Durka April 1 at 2:43 a.m.

    As usual, the “Obama is the antichrist” idiots are out in force, blaming him for everything.

    How about the banks go suck it for screwing the Taxpayer and the American Public.