Notes From The Mortgage Insider

Last Thursday evening, the United States Court of Appeals for the District of Columbia granted an emergency injunction against the Federal Reserve staying implementation of their new regulations which impose substantial restrictions on the compensation paid to loan officers as well as the fees paid to mortgage origination companies (like RMC). The rules were supposed to become effective the next day, April 1. We found out about the injunction that same morning.

So the huge changes that I told you about in my March 14 newsletter are being postponed, at least for a few days. Another hearing is scheduled for Tuesday, April 5. Most of our lenders said they will keep the old rules in place until the next order is issued by the Court, which may be as soon as Tuesday. However, I have been told by reliable industry insiders that a majority of the nation's lenders decided to ignore the US Court of Appeals and pretend that the new rules went into effect on April 1. That's chutzpah!

While we believe that the final rule and the policy it is based on is totally misguided (instead of focusing on what a mortgage loan costs an average borrower it focuses solely on what originators make - thus allowing wholesale lenders the freedom to gouge with impunity while simultaneously ensuring that the worst originators make the same thing as the best), we could have lived with it as originally published last fall. But the Fed kept pushing the envelope, giving out conflicting interpretations in their so-called "guidance" and, in a breathtakingly stupid move in mid-February, engaged in what can only be described as "verbal rulemaking" by announcing at a lunch meeting (reportedly) an extra special rule never previously mentioned.  What was in this extra special verbal rule? Nothing important, just that loan officers can no longer be paid by commission (they can be paid by salary only) for certain types of loans.

That is why we need the help of the courts; to remind the Fed that the requirements of due process apply to them too, and that verbal rulemaking is not kosher.

For us this subject is anything but funny, but we did get one good laugh because this all happened on April Fool’s Day (perhaps chosen purposely by the Fed?) so every one of the emails flying around about the injunction on Friday morning began with, “THIS IS NOT AN APRIL FOOL’S JOKE. REALLY.”

Hope everyone has a great week!

Margie Hofberg, President, Residential Mortgage Center Inc

To contact Margie Hofberg email her at margie@rmcenter.com. To be added to her weekly Newsletter email distribution list email Renee Bourassa at renee@rmcenter.com. Or just subscribe to RMC's blog right here!