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Many of you have heard by now that come April 1st the New loan originator compensation rule that the Federal reserve has come out with takes affect. The rule can be a bit confusing if you read the legal document.

The rule basically affects the way Mortgage Lenders pay commissions to Loan Originators. The new rule will only allow either the consumer or the bank/lender to pay commissions on a loan not both. For instance if a borrower wants to buy down the rate they can pay a 1% loan fee and get the lower rate vs. a No Points or no fee type loan which typically has a rate of about 25%-.375% higher. In the past I have offered this to my clients along with ( if it makes sense ) A No Closing costs loan which is a Free loan basically, where the lender credit the borrower 100% of the closing costs on a loan in exchange for a rate .125-.25% higher than the basic No points rate.

Unfortunately the Free loan option is currently set to be changed with the new rule by the FED. This in my humble opinion is a great disservice to the borrower because you are taking away what in some cases is a good option for them. For instance I am doing a No Closing costs cash out refinance loan for a client at 4.25% on a 15 year fixed. This option won't be available to clients after the new rule takes affect. Of course the FED is being sued over this new rule by NAMB & NAIHP along with some strong bi-partisan support from members of congress and the senate. So alot could change over the course of the next few weeks so stay tuned!