Loan Originator Compensation – The Government is Helping – Really!?

I just finished reading a lender letter about the new compensation rules issued by the Federal Reserve Board.

I’ve been around this industry for decades, have processed loans and am pretty clear on front points and back points (YSP – yield spread premium).  However, I have a difficult time understanding what the government is now trying to accomplish.

I understand that they are trying to protect the consumer, which is a great idea, in theory.  However, I’m not sure how they’re accomplishing this.

If I understand this (and I’m not sure I do).  The mortgage brokers must now have a contract with each of their lenders stating how much compensation as a percentage of the loan they will receive.  This cannot be changed from loan to loan.  So, regardless if the loan is $100,000 or $1,000,000, the lender will pay the mortgage broker the same percentage.

The other option is that the borrower can pay the mortgage broker directly (front points).

It doesn’t look like the mortgage broker can still be paid by a combination of front points and back points.

Why does any of this matter?

Well, in the past, if the mortgage broker was making more than expected based on the date the loan was locked, the mortgage broker might choose to lock a lower rate or pay some closing costs for the borrower.  That is no longer allowed.

Now, there’s no more flexibility, no way to help the borrower, even if the mortgage broker wanted to do so.

Using a combination of front and back points could bring down the borrower’s costs.The borrower must be able to pay all of their costs which may make it more difficult for a buyer to purchase.

I’m not sure how this is helpful to the borrower.  I know the government is trying to make things more transparent and more consumer friendly, but I think it just makes things more limiting for the consumer and prevents the mortgage broker from helping their client.

What do you think?