Dennis' Mortgage Blog

Below is a communication I sent to real estate professionals this week on the new Loan Originator Compensation rules that are to take effect April 1, 2011.

Effective April 1^st the Federal Reserve’s new Reg Z policies go into effect which governs compensation of loan originators.  The new rule mandates that loan originators, which include brokers, direct lenders, retail bank operations, credit unions and any entity providing residential mortgages can be paid either by the lender or by the borrower but not both. 

If you have a client in an escrow that is closing after April 1, 2011 I advise you to check with the loan originator to ensure the new guidelines will not adversely impact your escrow.  Some lenders are enforcing the new regulations on any loan registered with underwriting after March 31st, some are enforcing the regulations on loan application taken after March 31st and some are enforcing the new regulation on any loan funding after March 31^st.  This last set of lenders, those enforcing the rule on any mortgage funding on or after April 1^st, have the greatest potential to endanger your transaction due to inaccurate disclosure and rates and terms provided the borrower.

The intention of the rule is to eliminate originators “steering” clients to higher mortgage rates or mortgage products which will result in a higher yield spread premium, or rebate, from the lender as well as collecting origination points from the borrower.

The new Fed regulation has led to significant confusion in the industry as every lender and origination company has different interpretations on the new rules.  As a both a direct lender and a broker, Stratis Financial is uniquely positioned to offer the best of both to our clients as yet another set of industry changing regulations are enacted.  We are able to provide clarity through the confusion and ensure our clients are not damaged due to the new regulations.

As a direct lender, which is approximately 70% of our business including FHA, we are able to offer quality service and excellent pricing for many mortgage products to our clients.  As a broker we are able to still offer quality service and a wider choice of products and underwriting guidelines to our clients.  With the new compensation guidelines Stratis Financial will be able to offer a range of options to our clients and educate them on the best mortgage for their purchase transaction.

Uncertainty has become standard in our industry the past several years as different government agencies feel obliged to pass new regulations that impact mortgage originations and approvals.  With the array of products and sources I have available, from direct lending to brokerage, take comfort in knowing your clients and transactions are secure by referring me and Stratis Financial.

You can count on me to continue to deliver timely and accurate information that impacts you, your clients and your business.  You can also count on me to deliver timely and accurate information on your clients’ ability to qualify and purchase a new home.  You could before and you will after April 1^st and the new Fed regulations.