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Fed loan compensation rules delayed pending appeal
WASHINGTON (4/5/11)--The U.S. Court of Appeals for the District of Columbia last Thursday stayed implementation of the Federal Reserve’s Regulation Z Loan Originator Compensation final rule. This lawsuit has nothing to do with the SAFE registration process for mortgage loan originators, the Credit Union National Association notes. Implementation of the Regulation Z rule is now delayed until further order of the Appellate Court. The implementation delay is the result of emergency relief requests filed in the Appellate Court in late March by the National Association of Mortgage Brokers (NAMB) and National Association of Independent Housing Professionals (NAIHP). These relief requests followed a pair of early March lawsuits that these parties filed against the Fed in the U.S. Federal District Court for the District of Columbia. The suits, which sought a temporary restraining order and a preliminary injunction to prevent enforcement of the Regulation Z final rule, were rejected by the District Court in late March. The Appellate Court required the Fed to file its response to the emergency relief requests by Monday April 4th and both the NAMB and the NAIHP are required to file their reply to the Fed’s response by Tuesday April 5th. The final rule, which was set to come into effect on April 1, applies to closed end consumer credit transactions that are secured by a dwelling. The Fed’s final rule prohibits payments to loan originators, including mortgage brokers and loan officers, based upon the terms or conditions of the loan such as the interest rate. The rule would also prevent loan originators from being paid more compensation if the borrower accepts an interest rate higher than the rate required by the lender. This is commonly referred to as a “yield spread premium.” The practice of “steering” consumers toward loans that are not in their best interest to increase a loan originator’s compensation would also be banned under the rule. Loan originators would still be permitted to receive compensation that is based on a fixed percentage of the loan amount, however.


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