In a continuing effort to protect consumers and reform banks, the Dodd-Frank Wall Street Reform and Consumer Protection Act was enacted April 1^st, 2011.  In addition to controlling how credit card companies charge late fees, limiting executive compensation, and controlling bank bailouts, a small section of the bill also restricts how mortgage brokers and loan originators are compensated for doing a loan.  It's this section of the bill that, while well-intentioned, will ultimately cost consumers more to finance their home and remove the advantages for consumers that competition in the lending industry naturally creates. 

The general idea is to make sure that the loan originator has the best interest of the consumer in mind when pricing the loan and offering a rate and fee combination.  The unintended effect however, will be higher rates and increased costs to the consumer. 

In essence, the rule prohibits a loan originator from receiving compensation from fees paid by the consumer.  The loan originator can only be compensated by the mortgage broker and according to a predetermined percentage of the loan amount, essentially preventing the loan originator from negotiating and, in some cases, being able to compete and offer the customer a better deal.  As a consequence, lenders will have to protect themselves with higher rates and costs so that they can meet the terms of this new rule.  We saw that on April first as rates increased .25%. 

While the government may have had the best of intentions, this section of the new regulation will ultimately hurt the consumer by driving up the cost of obtaining a home loan.  That said, we will continue to do our best every day to make sure we provide our clients with the most competitive rates and terms available.  At the end of the day, while the new regulation badly misses the mark we will continue to serve each and every client to the best of our ability.  Our philosophy and culture is to treat each client like part of our family, treating every loan as if it were for a brother or sister.  Our goal is to ensure that our client's home financing meets their long and short term payment and equity objectives - that doesn't change with new regulations.

Teresa O'Dette

President

O'Dette Mortgage Group

530-581-5089 (Tahoe Office) * 775 North Lake Blvd., POB 7558, Tahoe City, CA 96145

415-931-2129 (SF Office) * 1842 Union Street, San Francisco, CA 94123

866-304-8323 (fax)

www.omglenders.com