Mortgage lenders and brokers are aware that the new regulations on loan originator compensation (part of Regulation Z) will go into effect on April 1. One aspect of those regulations that has received little attention until just recently is that if the consumer pays the loan originator directly (which may be the case with mortgage brokers, but will not be the case with loan originators who are employed by the creditor), the regulations prohibit any other person from providing any compensation to a loan originator, directly or indirectly, in connection with that particular transaction. This means that, if a mortgage broker is paid by the consumer, (i) the mortgage broker cannot receive additional compensation from the lender, and (ii) the lender cannot also pay compensation to any of its internal loan originators in connection with that loan (with the possible exception of an hourly wage). It is also worth noting that payments to a loan originator made out of loan proceeds are considered compensation received directly from the consumer. There is some question as to whether this is exactly the result that the Federal Reserve Board intended. We understand that the Mortgage Bankers Association of America is seeking clarification from the Fed on this provision, so it is possible that some modification will be forthcoming. Barring that, though, mortgage lenders should be prepared to comply with the above limitations commencing April 1.
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