Effective April 1, 2011, new Federal Reserve rules will change the way mortgage brokers and others who originate loans are compensated. According to the Federal Reserve, the rules are designed “to protect consumers in the mortgage market from unfair or abusive lending practices that can arise from certain loan originator compensation practices, while preserving responsible lending and sustainable homeownership.”
The new rules prohibit brokers and originators from (1) receiving compensation based on the loan’s interest rate or terms (other than a fixed percentage of the loan amount); (2) steering consumers to loans that lead to greater compensation but are not in the consumers’ best interest; and (3) receiving compensation from both the consumer and lender for the same loan (although they can still charge consumers for third-party services such as appraisals). More information about the rules is available from a recent New York Times article.
