APRIL FOOL'S JOKE? On April 1st the Federal Rule regarding Loan Officer Compensation goes into effect. In a nutshell this means that loan originator needs to negotiate his/her income with his/her lender and it cannot change from loan to loan.
In the past originators have had the ability to pick up some of the costs for the borrower from the income paid to him by the lender. For instance if the originator was going to make $2000 on a loan, they could opt to give the borrower a $500 credit. In some instances the borrower could pay a slightly higher interest rate and get credited back from the originator a portion of the closing costs, reducing the amount of funds they would bring to closing.
Up until now, the borrower could pay a processing fee and the lender could pay the loan originator a fee for delivering them the loan. Now the loan originator cannot collect from the borrower and from the lender. They must choose on every loan to do one or the other.
Also up until now if the borrower ended up short funds to close the loan originator could help with that. After April Fool's Day that will not be an option. Giving a credit to the borrower from the lender paid fees is prohibited even to get the mortgage loan to closing.
After April 01, 2011 it appears there will be two options for the borrower. Door #1 is they will elect to pay the loan originator from their own pocket all of their income, or Door #2, they can opt to have the lender pay the loan originator. If Door #1 is chosen, then there is no predetermined amount a loan originator can get paid, but if Door #2 is chosen, then the income for the loan originator cannot change even if they WANT to pay some costs for the borrower.
So, it appears the option of being able to offset some of the costs to the borrower with a lender credit will disappear on most loans. I would not imagine many borrowers would have the ability to pay the loan originator from their own pocket, so the majority of the loans would be done using the lender paid option. This will no doubt remove a lot of flexibility from the transaction.
This is the way things look for now. There are parties working on getting better clarification or downright withdrawal of this rule. It is being done in the name of consumer protection, but the result will likely be increased interest rates and costs to the borrower. As most of us are aware, no two loans are alike, each has its own obstacles, it will be difficult to look at them all as identical. We would like to think this is an April Fool's Joke, but unfortunately it is not!
