Magazine article Mortgage Banking

Prepare for a New Regulator

Magazine article Mortgage Banking

Prepare for a New Regulator

Article excerpt

An uncertain future was given to both lenders and their customers on July 21, 2010, as President Obama signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act. "It affects almost every aspect of the U.S. financial services industry," according to an analysis by New York--based law firm Skadden, Arps, Slate, Meagher & Flom LLP & Affiliates.

Mortgage lenders also will find the Dodd-Frank Act alters how they work every day. A new watchdog agency dubbed the Consumer Financial Protection Bureau (CFPB), will write and enforce regulations implementing the consumer protection parts of Dodd-Frank. Skadden, Arps explains that Dodd-Frank "endows regulators with wholly discretionary authority to write and interpret new rules."

Rulemaking authority for the major consumer finance laws affecting the mortgage industry will pass to the new government body as well. The Real Estate Settlement Procedures Act (RESPA) and the Truth in Lending Act (TILA) will fall under CFPB auspices. One of its first official tasks under the new law will be rewriting mortgage disclosure forms.

Clear views

If the law works according to lawmakers' intentions, consumers will have "more transparency" about how loan officers are compensated under Dodd-Frank, says Beth DeSi-mone, senior counsel in the financial services group at Arnold & Porter LLP, Washington, D.C. Yet borrowers also will have "less choice" as fewer financing options likely will be available, she adds. Negative-amortization loans, interest-only payments, balloon payments and prepayment penalties could become rare as Dodd-Frank is implemented, notes DeSimone.

Retail lenders won't be able to pay loan officers overages for originating business at above-market rates, says Mitchel Kider, managing member at Weiner Brodsky Sidman Kider PC, Washington, D.C.

"The consumer can pay [a loan officer] or a lender can, but not both of them" on the same transaction, Kider explains. And commissions must be the same for different loan types, so that originators aren't paid extra for more-profitable production.

Additionally, mortgage brokers will be prohibited from offering borrowers a range of fees and rates to select from. "If the customer pays [an origination fee], the broker can't get a YSP [yield-spread premium]" from the lender, says Michael Mierzewski, a partner in Arnold & Porter's financial services group in Washington, D.C.

Dodd-Frank will reduce consumer borrowing options, says William Howe, owner of Howe Mortgage Corporation, Scottsdale, Arizona, and president of the Fairfax, Virginia-based National Association of Mortgage Brokers (NAMB), Virginia. With the Dodd-Frank compensation limits, he asks, "What happens to consumer choice? …

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