A new law is going into effect on April 1^st that regulates how much loan originators* will get compensated on each loan.  Yes, this will affect me and everyone else in my profession, but it will also affect you too.  The law has many complexities, but my goal here is to provide you with the gist of the law and to break down how it will help you and how it will hurt you.  I will try to make this as clear and concise as possible; as with all laws, there are many facets and I cannot cover all of them, so I will go over what I believe is pertinent to you.

The rule came into existence in order to protect consumers from bad mortgage loan agents that steer(ed) borrowers into interest rates and loan programs that were not in the borrowers’ best interest, especially when steering occurred to benefit the loan agent’s direct compensation.

Beginning April 1st, loan originators cannot accept compensation that is based on the interest rate or other loan terms.  We must decide what percentage of the loan amount we will make, to be paid directly by the lender, and that will be the final percentage.  We are not allowed to make any more than that percentage, nor any less.  Alternatively, we can negotiate our compensation directly with you, but that compensation must be paid in full by you (so it will come out of your pocket, or out of your loan proceeds, value permitting).

So what does this compensation law mean for you?

How it will help you:

• You know your mortgage professional is not making any more on your loan (in terms of a percentage) than they are on another person’s loan
• You will not be steered into a program or product that only helps the loan originator in terms of compensation
• Your loan originator must give you choices (the best interest versus the least cost versus the loan with the least risky feature).  Hopefully you work with someone who does this anyway.

How it will hurt you:

• If, for any reason, the lock expiration is not met, you must pay for it.  It will now be “illegal” for your loan originator to pay for it (If you are purchasing a home, you can see if your real estate agent or the seller will cover it, but that likelihood is small).
• Your loan originator cannot choose to make less on any loan (cut their commission); for instance, to help you qualify, to help pay for closing costs, to pay for lock extensions … it simply cannot happen
• You will not be able to change your mind after locking between paying points versus not paying points
• Any 3^rd party charges must now be paid directly by you (appraisal, HOA Cert, Subordination Fee…).  Currently, I pay for these upfront and ask you to reimburse me at close of escrow.  Unfortunately, this will no longer be allowed.

We will see how this plays out after the 1st.

*A loan originator is any individual that facilitates or helps you acquire a mortgage loan.  This spans all aspects of the business, whether they are a direct lender, mortgage banker or mortgage broker.