Broad Federal Housing Bill Almost Law–LO Compensation Changes?
On the evening of Tuesday, June 16, both chambers of Congress reportedly agreed on a final version of the 21st Century ROAD to Housing Act – a broad bill aimed at addressing various housing issues including affordability and supply. If passed, the president is expected to sign as early as next week.
While the bill touches on a wide range of housing issues (e.g., affordable rental housing, disaster recovery and homeownership access), several provisions are particularly pertinent to residential mortgage banking companies. Below is a short list.
LO Comp Study
One of the most closely watched, the bill directs the Consumer Financial Protection Bureau (CFPB) to submit a report to Congress examining how various aspects of loan originator compensation affect the availability of small-dollar mortgages.
You may hear a lot about this item in the coming weeks, but here are some key points:
This is a study, not a rulemaking. The bill does not direct the CFPB to change LO comp rules, though CFPB studies sometimes serve as a foundation for action.
The study will examine the relationship between LO comp structures and access to small-dollar loans. This is an area where regulators have long expressed concern that current comp models create economic disincentives to originate smaller loans.
Mortgage lenders and their compliance teams should monitor the study's scope, methodology, and findings carefully, as they could shape the regulatory conversation around LO comp for years to come.
While perhaps important, this area of LO comp is not the biggest concern for mortgage companies. Other initiatives are underway in those regards.
FHA Appraisal Flexibility
The bill expands the pool of appraisers eligible to perform appraisals on FHA-insured transactions by permitting both licensed and credentialed appraisers to qualify, not just those with full certifications:
This is a workforce capacity measure designed to address persistent appraisal shortages, particularly in rural and underserved markets.
Delays tied to appraiser availability have been a real friction point in FHA lending, and this change could help reduce turn times and associated costs.
Lenders should review their appraisal vendor relationships and policies to understand how this flexibility can be incorporated into their FHA origination process.
HUD Housing Counseling Oversight
HUD is authorized to review and assess the performance of housing counseling agencies. While relatively modest in scope, this provision signals continued federal investment in pre-purchase and post-purchase counseling infrastructure, often viewed as playing a meaningful role in borrower preparedness and default prevention.
Small-Dollar Mortgage Pilot Program
The bill establishes a pilot program aimed at expanding access to mortgages with original principal balances of $100,000 or less. This is a segment of the market that has long been economically difficult to serve:
Origination costs for small-dollar loans are roughly comparable to larger loans, but the revenue generated is far lower, making them unattractive under many business models.
The pilot is intended to test approaches that could make these loans more viable to originate and hold.
Lenders active in lower-cost housing markets, or those looking to expand into them, should watch how the program is structured and whether it creates new origination opportunities.
Institutional Investor Restrictions
The final bill imposes new limits on institutional acquisitions of single-family properties:
An earlier version of the bill would have required institutional owners to divest built-to-rent properties within seven years. That provision did not survive negotiations.
The final version restricts future acquisitions but does not require forced divestitures of existing portfolios.
What's Next
The 21st Century ROAD to Housing Act is the most significant piece of federal housing legislation in decades, and its effects will be felt across the mortgage industry for years to come. We will be watching the Senate vote and presidential signature closely and will keep you updated as this becomes law.
Stay tuned.
Questions about how this legislation may affect your business? Contact troy@garrishorn.com.