The problem with mortgage fraud wasn’t broker compensation: it was the ease of the fraud and the incentives throughout the food chain for collusion. New Fed rules simply wipe out competitors to the “too big to fail” mortgage banks.
Why are we not surprised that the Fed took aim at mortgage fraud and ended up shooting the housing market in the gut. Here’s a simple guide to what’s good and bad for housing:
Things which makes it easier and cheaper to borrow money: good.
Things which make it harder and more expensive to borrow money: bad.
And that’s the fundamental problem with the Federal Reserve’s new regulations crimping mortgage broker compensation. Unless we expect mortgage brokers to take vows of poverty, then the system has to allow legitimate brokers to get paid in accordance with the amount of work the loan requires to get funded.
By severely limiting compensation, the Fed has basically wiped out small brokerages and lenders, reducing the availability of mortgages to a handful of–you guessed it–too big to fail banks, who already control the majority of mortgage origination.