New rules designed to limit the fees paid to mortgage brokers and certain other loan originators are getting a second look by House Republicans.
The House Financial Services Committee has indicated that it plans to review new rules governing mortgage compensation that are scheduled to take effect April 1. The rules, which are designed to prevent consumers from being steered into high-cost loans, end the practice of linking a broker's compensation to the interest rate or fees charged on a mortgage.
The new rules require that borrowers be offered the lowest mortgage interest rate they qualify for, at least when dealing with a mortgage broker or other secondary loan originator. Banks and other lending institutions that originate loans using their own capital are exempt.
The new leadership of the committee has expressed concern that the new rules "may have an adverse impact on the ability of small businesses that originate mortgages to remain in business." The committee's recently released oversight plan for the new Congress expressed an intention to review the implementation of rules before they take effect.
The rules, put forward by the Federal Reserve to implement 2008 amendments to the Truth in Lending Act, would prevent brokers from getting paid more for selling mortgages with higher interest rates and fees than borrowers might otherwise qualify for. Broker commissions could be based on the loan amount, but not on the interest rate or points charged. The rule would also apply to correspondent lenders that do not use their own funds when making mortgages.
Mortgage brokers have complained that the new rule puts them at a disadvantage to larger bank, which will still be able to nudge borrowers toward higher-cost loans. They also complain that it will prevent them from being adequately compensated for closing more difficult loans.
Consumer advocates have applauded the new rules, saying they will prevent consumers from being taken unfair advantage of. And the Mortgage Bankers Association, an industry group, has offered support for them as well, saying the convenience brokers offer will continue to attract borrowers to them.
The ability of the newly Republican-controlled House to block implementation of the rules is limited, given that the Senate is still controlled by Democrats. However, agency rulemaking tend to be more pliable than actual legislation, and it remains possible the rules might be amended as part of broader negotiations over financial regulation.