THE FED RULE DELAYED ; TEMPORARILY: After all the buildup – the Fed rule on loan officer compensation has been stopped – at least temporarily. A court will be reviewing this over the next couple days and giving a final ruling. As of right now, new loans can be originated just as before. In all likelihood, most expect the new rule will still go into place.
CONSUMERS HAVE A COUPLE DAYS TO GO OFF OF OLD PLAN: If you want to get a loan off of old commission structure , you will want to apply for a new loan immediately. As stated before, most still expect the rule to go into effect shortly – by end of week or early next week.
HOW THE NEW MORTGAGE REGULATIONS WILL AFFECT YOU: If the new rule does go into effect, here is an example of how it may affect you. The new rule states a loan officer can not be paid commission based on the terms of the loan.
Because of this, lenders will most likely price 1.5-3% into the pricing of all of their loans – all loans must be priced the same. What this basically means, is the lender has to make the same percentage profit on every loan they do regardless of a borrower’s situation. This can be priced with either up front costs or by giving a higher rate.
So lets say you have a 400,000 loan and a lender has 2% pricing built into the loan. The lender will be making 8,000 on the loan regardless of borrower’s situation- they have no way to make any different amount per the new rules. So lets say you as a consumer wanted the lowest rate paying points.
UNDER NEW PLAN YOU WOULD PAY: 8,000 lender fees + title and escrow.
UNDER OLD PLAN: Under old plan you would have more options. Most companies charge certain set costs: my company charges a 995 processing fee, and a 795 funding fee. These are house fees that I make no commission off of. So pricing starts out at 1,790. Now on a 400,000 loan, I would probably make .5 to .1% doing this loan. Let just say I charged .75 points – I would charge 3,000 origination fee, 995 processing, 795 underwriting = $4,790 in lender fees + title and escrow.
Now I can control the amount of money I make on old plan. If I have a customer that needs a certain amount of costs to make it work – I could lower my commission. The new plan does not allow any negotiation or options for a consumer. There is a certain percentage that a lender has to make on the loan regardless of the situation.
Imagine how this can affect higher loan amounts – like a 700,000 loan. I never charge 1% on a loan that big , but with the new plan a lender will have at least 1% in the pricing and most likely more. There is no negotiaion – pricing is what it is.
This also affects new purchases – sometimes we are trying to close a loan and we have to credit a borrower fees as they don’t have enough for closing. We can not do this per new guidelines – we make the same amount regardless.