Federal Reserve Says No to Point Banks

Since the ""Federal Reserve"":http://www.federalreserve.gov/ Board's loan officer compensation rule doesn't allow loan officers to lower their commission to cover a concession, the mortgage industry presented a proposal to create ""point banks"" that loan officers could solicit to grant price concessions to borrowers.

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The Fed has officially rejected the idea, which would involve taking 10 basis points per loan transaction and putting the cash in a ├â┬ó├óÔÇÜ┬¼├ï┼ôpoint bank.'

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The proposal would also have allowed loan officers the option to use overages to offer borrowers a better deal.

The Fed concluded that overages are tied to the terms and conditions of the loans, and since that indicated a violation of the new compensation rule, the entity said ├â┬ó├óÔÇÜ┬¼├ï┼ôno thanks' to the industry.

According to the senior attorney for the Fed, Paul Mondor, the rule would be compromised because the loan officer is bearing the cost of the price concession and taking 10 bps from each transaction amounts to spending the loan officer's previously earned compensation.

Elaborating Mondor said, ""We have yet to hear a variation on the theme of point banks that we think really can succeed under this rule.""

Other issues with the proposal included possible conflicts with RESPA, as the interpretation makes it harder for managers to penalize loan officers for errors. The Fed has ruled previously that mortgage companies cannot dock a loan officer's compensation if they incorrectly calculate closing costs and exceed the boundaries of the RESPA good faith estimate.