Loan originators face compensation crackdown

New rules take aim at loan pricing, yield spread premiums

Come April 1, a new set of rules governing the compensation of loan originators comes into play. Loan originators are mortgage brokers, and loan officers (LOs) working for brokers or lenders. They are the individuals who borrowers deal with; they take the loan application and shepherd the borrower through the process.

I wrote about the new rules when they were first announced in 2009, but a current rereading indicates that I didn’t get to the bottom of it at that time. This week, I decided to take another look with the help of a "Compliance Guide" recently issued by the Fed, which helps clarify both what the Fed is looking for and where it is muddled.

Defining lenders and brokers

The rules hit brokers and lenders differently, so it is important to know the difference. Lenders are entities that close loans with their own or borrowed funds, and either hold them in their portfolios or sell them in the secondary market. Brokers deliver loan packages to lenders who close and fund the loans.