Mortgage Broker Groups Lose Appeals Against New Compensation Rules

By Kyle Chezum Updated on 4/7/2011

The Federal Reserve rule that significantly changes the compensation model for loan officers and mortgage brokers will continue to take effect as planned after two mortgage industry trade groups, the National Association of Mortgage Brokers and National Association of Independent Housing Professionals, challenged the new laws in court.  All motions were denied yesterday by the US Court of Appeals in Washington.

U.S. District Judge Beryl Howell had previously rejected similar demands that the rules be revised.  “The board has reasonably concluded that the rule will further public policy interests, a position that is further supported by the Dodd-Frank Act, which also includes provisions restricting certain loan-compensation practices,” Howell said.

The Fed's new rules are intended to make it easier for consumers to purchase homes by ensuring that low, accurate interest rates are provided.  The rules accomplish this by abolishing compensation increases for mortgage brokers who get homebuyers to sign up for mortgages with higher interest rates.  As of now, such practices are a thing of the past.

Many loan officers, though, feel that this ruling will only stifle business.  Marc Savitt, president of the National Association of Independent Housing Professionals, was especially concerned.  “The consumer is going to be an even bigger loser than small business.  I can’t give discounts anymore to my borrowers," he said, touching on the concern held by many that mortgage lending standards will become even tighter now in the wake of this ruling as broker try to mitigate losses by eliminating risk.

The trade groups claim they will continue to appeal the ruling.