The two groups say that HFA loans are typically more expensive to originate, involving added bureaucracy and paperwork. However, lenders can’t charge more for the loans because HFA loans fall under the loan officer compensation rule. That rule prevents lenders from tacking on additional charges for loan products. Generally speaking, compensation must be based on the loan amounts. The rule was adopted as part of the Dodd-Frank Wall Street and Consumer Protection Act reforms to discourage lenders from steering borrowers into risky, higher-priced loans.
Garth Rieman, NCSHA’s director of housing advocacy and strategic initiatives, told Scotsman Guide News on Monday that the trade groups fear that fewer lenders are originating HFA loans because the net compensation is lower. HFA represents only about a 5 percent share of the mortgage market, Rieman said. However, these loans, which often offer lower interest rates and down payments, are designed for lower-income borrowers and first-time homebuyers.
The federal government has been on a push to attract first-time homebuyers in order to spur sluggish home sales. Recently, for example, the Obama Administration cut the annual insurance premiums for Federal Housing Administration, and allowed Freddie Mac and Fannie Mae to back loans with 3 percent down payments.
Rieman noted that HFA loans are already exempted from the Qualified Mortgage rules, indicating that CFPB recognizes that HFA loans are a special category of loans. However, he said that the trade groups are seeking a guidance statement from the CFPB, and is not seeking new regulations that would limit or overturn the loan officer compensation rule. ##
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