In a surprise move, the Federal Reserve Board has issued a final rule that imposes restrictions on loan officer and mortgage broker compensation that is very similar to compensation language in the recently passed Dodd-Frank Wall Street Reform and Consumer Protection Act.
The effective date of this final Truth in Lending Act rule is April 11, 2011.
The final rule is "consistent" with the Dodd-Frank bill, the Fed said because it prohibits payments to a mortgage originator that vary on the terms of the loan, other than the amount of the credit extended.
This means lenders can pay a 2% commission, for example, to originators based on the amount of the loan.
The TILA rule also is consistent with the reform bill because it prohibits the payment of yield spread premiums to brokers, if the broker receives "any compensation directly from the consumer."
The Fed makes it clear in the rule and staff commentary that the compensation restrictions do not apply to home equity lines of credit or to loan modifications performed by servicers.
The anti-steering provision in the rule includes a safe harbor. It will be presumed no violation has occurred if the consumer is presented with "at least three loan options for each type of transaction (fixed-rate or adjustable-rate loan) in which the consumer expressed an interest," the Fed said.
The Fed proposed these TILA changes in August 2009 and the lawmakers essentially codified many of the provisions in the Dodd-Frank bill.