This law went into effect in early April 2011 and provides many new rules regarding loan originators.

 

Prior to its enactment, a mortgage loan officer would provide a good faith estimate in which all fees were disclosed to the potential borrower.  Generally, there would be a loan origination fee of usually 1%. But then depending on the price of the money, there would be a yield spread premium that would be made payable to the loan officer.  This was not a charge to the borrower, and was not included in their closing costs.  If a borrower wanted a lower rate, the fees that they paid could be increased, and if they were low on closing funds, the rate could be increased and loan officer could pay a portion of the buyers closing costs.

 

With the inception of Dodd-Frank, we were no longer allowed to charge an origination fee AND get any portion of yield spread premium.  We had to state up front what we wanted our fee to be, and that would be paid in the form of a yield spread premium.  None of that money could be credited to the borrower.  If the borrower was looking for a specific rate and market didn't have it, they would be allowed to pay discount points to get the rate closer to their desire.  Dodd-Frank took away the borrower's negotiation power.  Loan officers had no limit on what they wanted their compensation to be. This caused competition according to Dodd-Frank, but what it really did was hurt the borrower.

 

My case is we had a borrower who had locked in his interest rate at a rate that would allow the borrower to receive a credit of $7,800.00 He was purchasing a home for $160,000.00 using the FHA program.  That program requires that he have 3.5% of his own funds, or $5,600.00.  The closing costs did not exceed or even meet the amount of the $7,800.00.  He needed a total of $6,600.00 for down payment and closing costs.  So he had $1,200.00 more than was needed.  So even though that credit was HIS, the only way he was allowed to use it was to buy down the interest rate to a lower amount.  I think that was what he should have done, but it would have caused a delay in closing his new home, and he and his family were desperate to be in the new home prior to Christmas.  So, what to do with the $1,200.00???  Any takers?  The only option was to leave it in what is called a flex account, which is an account that can be used on behalf of other borrowers if they are short closing funds, a new appraisal is required or a locked interest rate expires.  Is that the real purpose of legislation....to take from some and give to others?

 

So did Dodd-Frank cause mortgage loan officers to make less money?  No.  Remember loan officers choose what they want their compensation to be.  It has cost borrowers money, it has decreed that mortgage loan officers cannot contribute to any part of the file.  Realtors can, sellers can, but not loan officers.