Today, it is not uncommon for lenders to pay loan originators more compensation if the borrower accepts an interest rate higher than the rate required by the lender (commonly referred to as a “yield spread premium”). That will change April 11, 2011.

The final rule, which applies to closed-end loans secured by a consumer’s dwelling, will: (i) Prohibit payments to the loan originator that are based on the loan’s interest rate or other terms, but compensation based on a fixed percentage of the loan amount is permitted; (ii) Prohibit a mortgage broker or loan officer from receiving payments directly from a consumer while also receiving compensation from the creditor or another person; (iii) Prohibit a mortgage broker or loan officer from “steering” a consumer to a lender offering less favorable terms in order to increase the broker’s or loan officer’s compensation; and (iv) Provide a safe harbor to facilitate compliance with the anti-steering rule.  

The final rule applies to loan originators, which are defined to include mortgage brokers, including mortgage broker companies that close loans in their own names in table-funded transactions, and employees of creditors that originate loans (e.g., loan officers). Thus, creditors are excluded from the definition of a loan originator when they do not use table funding, whether they are a depository institution or a non-depository mortgage company, but employees of such entities are loan originators.