Mortgage brokers challenge new compensation rules

Lawsuits claim ban on rebates will give bank loan originators unfair advantage

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Two groups representing mortgage brokers and other real estate industry professionals have filed suit against federal regulators over new rules governing loan officer compensation that are scheduled to take effect April 1.

The Federal Reserve drafted the rules to implement provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act that are intended to prevent loan originators from steering borrowers into higher-interest-rate loans.

The rules, which stipulate that loan officer compensation cannot be based on a mortgage transaction’s terms, will prevent mortgage brokers from collecting rebates on higher-interest loans known as yield-spread premiums, groups representing mortgage brokers say.