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.