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Mortgage Broker Groups Fail to Block Federal Reserve Loan Commission Rule

Two trade groups representing mortgage brokers lost their attempt to stop a Federal Reserve rule that limits commissions for loan officers in mortgage transactions from taking effect.

The U.S. Court of Appeals in Washington yesterday denied emergency motions from the National Association of Mortgage Brokers and the National Association of Independent Housing Professionals. They argued the rule unfairly penalizes brokers, who won’t be able to pay loan officers in consumer-paid transactions.

“Appellants have not satisfied the stringent standards required for a stay pending appeal,” the court said in its order dissolving an earlier ruling preventing the Fed rule from being implemented on April 1.

The appeals court said the challenge can continue while the rule is in place. The court ordered briefs to be filed next month.

U.S. District Judge Beryl Howell on March 30 rejected the groups’ request to stop the provision from taking effect, finding that public policy interests outweighed harm to the mortgage-broker industry.

“The board has reasonably concluded that the rule will further public policy interests, a position that is further supported by the Dodd-Frank Act, which also includes provisions restricting certain loan-compensation practices,” Howell said in a 46-page opinion, referring to the law that overhauled the financial industry last year.

Separate Lawsuits

The trade groups filed separate lawsuits and appeals challenging the regulation.

The Fed rule, part of the central bank’s effort to fix weaknesses in mortgage finance, is aimed at preventing mortgage originators from receiving more compensation for selling home loans with higher interest rates.

Susan Stawick, a spokeswoman for the Federal Reserve, declined to comment.

Marc Savitt, president of the National Association of Independent Housing Professionals, said he was disappointed by the ruling. Savitt said his group will continue with the appeal.

“The consumer is going to be an even bigger loser than small business,” Savitt said. “I can’t give discounts anymore to my borrowers.”

Mike Anderson, government affairs chairman of the National Association of Mortgage Brokers, said his group will move forward with the appeal while also seeking a legislative solution.

‘Continue to Fight’

“We will continue to fight,” Anderson said. “We believe we’re right.”

The Dodd-Frank law, the most sweeping overhaul of financial regulation since the 1930s, created a new Consumer Financial Protection Bureau that must also write regulations to prevent loan officers from steering customers into costly loans.

The cases are National Association of Mortgage Brokers v. Board of Governors of the Federal Reserve System, 11-5078 and National Association of Independent Housing Professionals Inc. v. Board of Governors of the Federal Reserve System, 11-5079, U.S. Court of Appeals for the District of Columbia (Washington).

To contact the reporter on this story: Tom Schoenberg in Washington at tschoenberg@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net.

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