New rules set limits on loan-originator pay

Brokers and loan officers will no longer earn more if they steer borrowers to a more expensive mortgage. Previously, the originator made more money for loans with worse terms.

By Teresa at MSN Real Estate Jan 21, 2013 1:35PM

Approved mortgage application (© Alex Stojanov/Alamy)The Consumer Financial Protection Bureau has issued new rules for mortgage brokers and loan officers designed to end some of the abuses that occurred during the real-estate boom.


Some homeowners were steered into toxic mortgages by unscrupulous brokers and loan officers because if the customers took those loans, the brokers would make more money. Loan originators also got borrowers to sign up for higher interest rates and prepayment penalties, even though they qualified for better terms, because it made the originators more money.


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"These rules recognize that people tend to do what they get paid to do," CFPB Richard Cordray said in a mortgage policy press call. "By removing financial incentives for originators to push borrowers towards risky loans, we are ensuring that the mortgage market will be more stable and sustainable, and consumers will be better protected."


The new rules, which will go into effect in January 2014, seek to end the worst of these abuses, prohibiting a mortgage broker or loan officer from being paid more if he sells the borrowers a loan with a higher interest rate, higher fees or a prepayment penalty. The originator also can’t be paid more for steering the borrower to an affiliated title company.

Loan originators also can’t be paid by both the lender and the borrower. That rule seeks to put the originator on the side of the borrower rather than in favor of the loan that makes him the most money.

The rules set standards for qualification and screening, including criminal background checks and training. They follow the issuance of new rules for mortgage servicers and new rules requiring lenders to verify that borrowers can afford the mortgages.


The CFPB decided against a rule that would require loan originators who were offering loans with upfront fees, or “points,” to offer a loan option without those fees.

"Before the financial crisis, many mortgage borrowers were steered toward risky and high-cost loans because it meant more money for the loan originator," Cordray said in a news release. "These rules will hold loan originators more accountable by banning the incentives that led so many of them to direct consumers toward disaster."

Feb 2, 2013 7:25PM
This is a small tiny reversal of the Dem rules that caused all the problems in the first place.  And it just gets more media attention than the new lessening of loan requirements for the second time after they were clamped down on after the Dems let them loose the first time.  Added to that, the dems are also allowing for 43 or 46% of income to be used for a mortgage... and people don't have to follow income verification requirements under the new rules.  Get the full story NBC.
Feb 2, 2013 1:21PM
I am all for assisting folks who are about to lose their homes....HOWEVER, until the gov begins to recognize that millions of taxpayers are underwater by no fault of their own, and continue to make payments on something that is not worth the payment, there will be no equal protections as was supposed in our beloved constitution.
If I had the power I would organize ALL underwater mortgage holders to walk at the same time....
talk about implosion......
are you listening uncle sugar???
I am tired of being told I cannot refinance, I pay and pay every month for a house that is worth 40% less than when I bought it, but because I am a responsible citizen and continue to pay the gov looks the other way ignoring us as a class of people, where is the equal consideration congress??

Feb 2, 2013 11:33AM
This article is ALL false. You should check your facts before you write that crap. Loan officers and brokers do not decide how much a loan will pay - Banks and (Freddie & Fannie, who ultimately purchase the loans). If you Incentivize bad loans they will sell bad loans. Ask any economist. If the lenders paid more points for 30 year fixed loans loan officers would sell those but they paid more for option arm loans. What do you think they sold? Just totally false. 
Feb 2, 2013 9:50AM
Plus, people will have to get informed better to stay afloat, and that couldn't hurt either.
Feb 2, 2013 9:48AM
No kidding, and though I know I may sound like a jerk to some, can you imagine if everyone would actually abide by the rules and laws in this world? Just think how much money we would save. It is an awful tragedy, but the fact is that, to me, it seems like we are passing up an enormous gift by not giving ourselves the benefit of the doubt as a group on this planet. I'm suggesting everyone begin acting like a robot in a police state either, but the world could be so much cooler if people would just behave. Less murders, more resources, better morale and it just keeps going on and getting better. What is our problem, couldn't we stand it?
Feb 2, 2013 9:44AM
What gov regulations are making it impossible for a person to buy a house?
Feb 2, 2013 8:09AM
Government regulation has made it almost impossible for a person to buy a house, even if that person has good credit. Some of the information that is required (per the government's request) is outrageous. 

Yes, the mortgage meltdown was due to a lot of crooked people selling mortgages to people that had no business buying more than they could afford.  People shouldn't buy 300,000 homes if they can only afford 150,000 homes. Greed contributed to this mess, too.  
Feb 2, 2013 8:03AM
This is a load of crap. This is not true. Do your research before feeding this kind of nonsense to the public. Perhaps this is the way that some brokers were paid, but don't lump the brokers with all loan originators.

The changes in the way that loan originators are paid took effect 2 years ago.  This part is old news. 

Cure your writer's block with another topic... or don't wait until the last minute to write your article.
Feb 2, 2013 7:12AM
Mr. Hengsway, if you have excellent credit, and a solid salaried income in a profession not hit by the recession, no recent credit checks from anyone other th****nder, and you don't pay out more than 50% of your total income in monthly bills, and there aren't any other people on your mortgage or title, then you should be able to get a rock bottom rate for a 30 year mortgage. Also, just because you have a 30 year mortgage doesn't mean you have to stick to that. If you paid a couple hundred more each month toward the principal, it would take years off your mortgage. If I were you, I'd pay down the 2nd like crazy every month and get rid of it and close it asap. Then once that's gone, pay down the first like crazy. Nevermind the rate, if you pay more toward the principal every month then it'll work out better for you in the end to just keep what you have. No matter what the lenders say about points and closing costs, you end up paying for everything and owing more than planned. Don't worry about the rate, just pay more and get rid of it faster. 
Feb 2, 2013 5:11AM
Went with Wells Fargo and got mine done for 3.5%
Feb 1, 2013 11:19PM
What can a person do if they were drawn into such a loan.  I think I was because of my excellent credit I still cannot understand why I could only get a 2nd mortgage loan at 8.l9% 3 years ag.  Still can't get anyone to refinance my 6% and the 8.19% together even today.  Can't figure it out yet, but I will and when I do, I will not be as gulable as the first crook caused me to be.  Anywhere a person can go to get any relief from such poor lending by Washington Mutual at the time that Chase bought and has held on like a dog that hasn't eaten in a long time, they will not budge for any reason.  They love reaping in the money every month at 8.19%, I guess my bad luck, or is it going to be Chase's
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