Consumer Advocates, Mortgage Brokers Disagree Over New Mortgage Kickback Rule
New rules issued by the Federal Reserve banning mortgage broker kickbacks or yield spread premiums (YSP) tied to interest rates are being applauded being consumer groups and denounced by mortgage broker associations.
The new rules target a perceived form of predatory lending. Consumer groups argue that in the build up to the financial crisis, brokers received big commission for steering consumers into loans with a higher interest rate, even if they qualified for a lower rate. Mortgage brokers argue, however, that the YSPs are not abused, rather they are costs consumers never see since banks offer brokers discounted wholesale rates in order to solicit business.
Mike Anderson, the Government Affairs Chairman for the National Association of Mortgage Brokers (NAMB), claims that the new rules will result in tremendous layoffs and favor big banks that have greater flexibility in pricing.
On Wednesday, April 6, the U.S. Court of Appeals denied an emergency injunction filed by NAMB and the National Association of Independent Housing Professionals to block the rule from taking effect.
To read the Federal Reserve’s explanation of the new rules, click here.