Some important changes recently went into effect impacting how bank mortgage loan originators and mortgage brokers can be compensated.
Effective with mortgage loan applications received on or after April 1, 2011, loan originators and mortgage brokers can no longer receive compensation incentives based on the pricing of the loan (e.g., the APR or loan origination charges). Instead, compensation must be based either on a fixed percentage of the loan amount or a flat dollar amount per loan.
In its analysis of the mortgage crisis, the federal government determined that the old compensation method — in which loan originators and brokers were compensated based on the profitability of a transaction — was one of the causes. For example, if loan originators and brokers could get customers to pay a higher than market rate or higher closing costs on a mortgage, they could receive additional compensation based on this higher amount. Such compensation models are now illegal.
A new anti-steering provision is also now in effect. This provision prohibits loan originators and mortgage brokers from steering customers toward a loan with less favorable terms in order to increase their compensation. Customers must be offered a mortgage with the lowest interest rate for which they qualify, the lowest points and origination fees, or the lowest rate for a loan without risky features like pre-payment penalties and negative amortization.
The Secure and Fair Enforcement for Mortgage Licensing (or SAFE) Act is another effort to enhance consumer protections and reduce mortgage fraud. It is creating a nationwide mortgage licensing system and registry for the residential mortgage industry by setting a minimum standard for licensing and registering of residential mortgage loan originators.
The initial period for federal registration will run from January 31, 2011 through July 29, 2011. All mortgage loan originators must register with the Nationwide Mortgage Licensing System and Registry database during this time period.
For more details or to access the registry, visit http://mortgage.nationwidelicensingsystem.org/fedreg/Pages/default.aspx.