Proposed rule change to Regulation Z, and the myth about YSP
We know the Federal Reserve Board doesn’t fully understand the impact the proposed rule changes to Reg Z will have on consumers. Part of the proposed rule change will impact ow loan originators are compensated for their work. For the most part the industry has corrected the problems that existed a few years ago. Recently we had to adopt a new HUD settlement statement as a result of transparency on fees to consumers for the sake of shopping for better home loans. Also, there have been implemented changes to appraisals that maintain appraiser independence.
Whether you feel those were good or bad changes, they have happened. Now the FRB is trying to change how originators are compensated, through adopting critical changes to Regulation Z.
Here is a brief excerpt from the IMMAAG position statement, but I urge you to visitwww.frbcalltoaction.info and help us out. ”
The Board has stated that its intention in 226.36 (d) is to prevent deceptive practices and unfairness. In order to implement that “protection” the Board proposes that it will:
· Prohibit certain payments to a mortgage broker or a loan officer that are based on the loan’s terms and conditions.
· Prohibit a mortgage broker or loan officer from ‘‘steering’’ consumers to transactions that are not in their interest in order to increase the mortgage broker’s or loan officer’s compensation.
The Board is only authorized to implement these changes if the change is needed to prevent deceptive practices or unfairness.
On page 43237 in support of what it considers to constitute deceptive or unfair, the Board cites FTC requirements:
“First, there must be a representation, omission or practice that is likely to mislead the consumer.
Second, the act or practice is examined from the perspective of a consumer acting reasonably in the circumstances.
Third, the representation, omission, or practice must be material. That is, it must be likely to affect the consumer’s conduct or decision with regard to a product or service.”
Since the costs incurred by the borrower are clearly the combination of the front end costs, which the Board cites in its rule are fully and transparently provided by the Good Faith Estimate (See page 43234) and by the disclosure of the loan’s interest rate, there is nothing in the compensation paid from a lender to an originator that triggers any of the FTC tests.
Consumers know exactly what their costs are. If the originator offers a higher interest and it happens to provide a higher share of the lender revenue to the originator, the consumer is neither deceived nor treated unfairly because the consumer is fully aware of their costs through the disclosure of the interest rate and the consumer is free to locate another loan source at will.”
Please visit www.frbcalltoaction.info and help out by passing along.