LO Comp Changes and How They Affect You

21 03 2011

Once again, the rules of mortgage lending are changing.  Effective April 1st, 2011, the Fed’s Loan Officer Compensation Plan will change how much a mortgage will cost and will reduce the available options for you.

The Fed wanted to benefit consumers by limiting unethical steering practices and limiting the amount that loan officers could make and the ways they were compensated.  They did this with the LO Comp Plan.

Benefits for you:

  1. LOs can only be paid by you or by the lender, but not both.
  2. LOs can only be paid based on the loan amount, not your credit score or other terms of the financing.
  3. LOs are prohibited from steering you to lenders that would pay more money.

Drawbacks:

  1. Expect delays and added paperwork in the loan process.  The Fed is still clarifying parts of its comp plan, and many of the street-level implementations of these new requirements are still being written and revised by lenders.  In short, the Fed is still trying to figure it out, as are all the lenders.
  2. Rates and fees are both likely to increase.  The added legal and regulatory burdens raise costs for lenders, which indirectly raise the cost of mortgages for the customer.
  3. Some loan programs will disappear or change.  Certain mortgage programs, like bond money programs, will be noncompliant under the new regulations and must be changed or halted.

These are just the beginning of many changes in the industry.  The Dodd-Frank Act, which will be enacted in the future, will further change the role of mortgage lending.  It’s more important than ever to have someone you trust who is looking out for you during these turbulent times.  For honest answers and guidance through the coming changes, please reach out to me.

As always, here to serve.

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