Final rules effective April 2011 were announced by the Federal Reserve Board this week. According to the Board's press release, the new rules are intended to protect mortgage borrowers from "unfair, abusive, or deceptive lending practices that can arise from loan originator compensation practices."

Currently loan originators receive more compensation from lenders if the borrower's loan has an interest rate higher than the rate that the lender requires. Borrowers unaware of this practice may not realize that the loan originator has a monetary motivation for them to accept a higher interest rate.  "Under the final rule, however, a loan originator may not receive compensation that is based on the interest rate or other loan terms. This will prevent loan originators from increasing their own compensation by raising the consumers' loan costs, such as by increasing the interest rate or points."

The new rules also prohibit loan originators from receiving compensation from a lender or third party if they have received compensation from the borrower. This aims to prevent borrowers paying loan originators directly and also paying them indirectly through an increased interest rate.

Finally,  "the final rule prohibits loan originators from directing or "steering" a consumer to accept a mortgage loan that is not in the consumer's interest in order to increase the originator's compensation. The rule will preserve consumer choice by ensuring that consumers can choose from loan options that include the loan with the lowest rate and the loan with the least amount of points and origination fees, rather than the loans that maximize the originator's compensation."

As the new rules do not go into effect until April 2011, borrowers should make sure that they have explored all of their loan options in order to make an informed decision. Many borrowers will choose to seek the advice of a real estate attorney to guide them through the home loan and purchase process.