The Fed’s latest directive is that banks should not let mortgage originators get better fees for tricking those who want home loans into taking higher interest rates.
“Today, lenders commonly 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”),” the Fed said. Under the final rule, however, a loan originator may not receive compensation that is based on the interest rate or other loan terms”, it addedIt is a wonder that the Fed should have to issue the edict at all. The predatory mortgage lending business has been around nearly forever. As a matter of fact, it helped cause the housing crisis. Those who pay more interest than the ought to are almost certainly more likely to default.
The Fed has only made a final decision on this type of lending this month. And, it is another example of how slow the government can be to address a situation that it has known about for a long time. It is the nature of greed that bankers should try to make more on lending, just as it is the nature of people who sell groceries to overcharge for tomatoes. In the case of tomatoes, consumers know how to comparison shop. And the process of buying tomatoes is simple.
Most people still do not understand the details of the mortgage process. The Fed might have protected those people years ago. Perhaps it was too busy saving the banking industry.
Douglas A. McIntyre
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