Welcome to Part Two of our August 2011 Mortgage Banking Newsletter!
Dodd-Frank Wall Street Reform and Consumer Protection Act
The July 2010 passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act was momentous in the mortgage banking industry. Perhaps the most significant (or perceived as such) change brought about by Dodd-Frank was the shift in loan origination compensation practices. Effective April 1, 2011, Dodd-Frank barred payments to loan originators based on interest rates or other terms; prohibited payments directly from a consumer and the creditor; and prohibited steering a consumer to a lender offering less favorable terms.
The gap between passage and implementation was intended to provide lenders and originators time to develop models and systems to implement these changes. During this implementation period, the compensation rules were the cause of frustration, consternation, and spawned debate over its impact on mortgage banking businesses. Could the little guys compete with the big banks? Would quality loan originators jump ship to exempt institutions? How would implementation impact profitability?
It’s been almost nine months since the final rules took effect. According to the Mortgage Bankers Association, per loan profitability was down 66% in the first quarter of 2011. A poll of our clients and colleagues echoes the findings of the MBA. The prevailing sentiment is that the new rules have had a significant impact of profitability. By far, the prevailing theme is, as predicted: the inability to be flexible in pricing structure has made it difficult for the non-depository mortgage banker to compete for all types of business.
How has your company fared at the three quarter poll? Let us know.