FRB: Mangles Affiliate Compensation

by Jonathan Foxx

As if the confusion caused by the FRB's lack of substantive guidance regarding TILA loan originator compensation were not enough for the industry to absorb, the FRB now sallies into adversely affecting another market segment of the residential real estate finance industry: affiliates.

It is one thing for the FRB to find regulatory means to implement Dodd-Frank; however, it is unacceptable to discombobulate affiliate relationships by an overreaching interpretation regarding loan originator compensation in a way that amplifies the confusion.

While so many market participants are rightfully concerned with the consequences following April 1, 2011, the effective date of the new TILA loan originator compensation requirements, I want to bring your attention to the FRB's stance with respect to affiliates, a core business relationship feature, and how affiliate compensation is being imperiled by the forthcoming TILA revisions.

Recently, several leading industry organizations announced that they had sent a joint letter to the FRB (Letter). The Letter - which is dated February 28, 2011 and addressed to Ben Bernanke, FRB Chairman, and Sandra Braunstein, Director of the FRB's Consumer and Community Affairs Division - contests the FRB staff's interpretation and offers two reasonable alternatives.

Some media sources have mentioned the Letter, but they have provided scant information about it.

So I reached out to a trusted friend and leader in one of the Letter's sponsoring organizations, and was graciously given a copy. In my view, the points raised in the Letter deserve to be more fully known by the public, and the views therein expressed should be added to the other industry requests, previously placed with the FRB, to either delay the aforementioned effective date or provide credible, unambiguous, and supportable guidance prior to the effective date. A brief synopsis follows.

Here is the list of signatories to the Letter:

• Community Mortgage Banking Project (CMBP)

• Consumer Mortgage Coalition (CMC)

• National Association of Homebuilders (NAHB)

• National Association of Mortgage Brokers (NAMB)

• National Association of REALTORS (NAR)

• Real Estate Services Providers Council, Inc. (RESPRO)

• The Realty Alliance

These organizations are among the most prominent in the residential real estate finance industry, with substantial membership, and have dedicated themselves for many years to providing support, guidance, and advocacy to industry participants and the public.

The article provides an outline of the letter, the issues involved, and the resolutions offered. Resources are provided, along with hyperlinks to additional articles. A copy of the letter is in our firm's Library.

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Written by:

Jonathan Foxx

Lenders Compliance Group on:

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