New Mortgage Broker Compensation Rules May Give Unfair Advantage to Large Banks

By Kyle Chezum Updated on 4/11/2011

The new compensation structure for mortgage brokers was initially scheduled to roll out across the nation on April 1st, but was held up at the last minute by an appeal from several industry trade groups.  Within just four days, though, the Federal Reserve went ahead and implemented the changes anyway, and now some industry insiders are concerned that the mortgage marketplace will suffer negative effects as a result of the new model.

Among other concerns, many mortgage professionals fear that the compensation restrictions will make it more difficult for independent mortgage brokers to serve their clients effectively.  This lack of flexibility places brokers at a disadvantage and makes it easier for large banks to capture market share.  With time, independent brokering may disappear almost entirely, leaving the large banks to run the mortgage marketplace on their own.

Lisa Schreiber, vice president of a wholesale lending operation in Connecticut, offered an example of how the rules might negatively affect brokers.  "Say for whatever reason--maybe you were having a hard time getting documentation and you had to wait--the loan took longer than expected. There may be costs associated with that extra time. That was usually taken care of by the broker--that broker has been able to reduce his or her compensation.  With the new regulation, you as a consumer will have to pay for any fees. The broker will legally not be able to help you pay."

Banks will offer something that brokers won't be able to offer any longer.  Stability.  Unfortunately, this may take healthy competition out of the marketplace, rather than cementing it firmly in place, as the Federal Reserve had hoped to do when drafting these rules.