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Realtors in even more danger of less business and mortgage brokers under fire - again!
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In a knee jerk response to the mortgage crisis, some really "smart" folks in Congress think they are doing the right thing by preventing home buyers from using the Yield Spread Premium to pay for closing costs, including origination fees that all mortgage folks use to get paid. Some members of Congress have proposed and now have the House of Representatives voting on HR 3915. This bill is also known as the "Mortgage Reform and Anti-Predatory Lending Act of 2007”. Enacting this bill will essentially force all mortgage brokers to charge you points to arrange a mortgage for you. This means that if you are going to use a mortgage broker to buy a home, or refinance, you'll have to take more money out of your pocket to do so.
Did you know that mortgage brokers arrange for approximately 60% of all the loans in the US? If you do not want to pay your mortgage broker directly out of your pocket, where are you going to be forced to get your mortgage? That's right - your bank.
Let's visit this term called the Yield Spread Premium (YSP) - what is it? The YSP is determined from the interest rate you agree to take. The mortgage loan originator, no matter who they work for (mortgage broker, mortgage banker, local and regional bank, and federally chartered banks), quotes you an interest rate range based on the profit margin that they want to make on your mortgage. Generally, every .25% in interest rate is worth about 1 "Point" to the originator and you. A competitive mortgage broker in the business to provide good customer service and serve you with good business practices has an average profit margin of about 1.5%-2.0 in points. For example, I recently quoted and closed a loan for a couple that paid my company a little under 2 points at 6.625%. They were quoted by Countrywide at 6.875 and 3 points. If you do the math, that's a 4 point swing on top of my nearly 2 point margin for a 6 point deal. Countrwide is a mortgage banker, not a mortgage broker, and did not have to disclose the YSP, which for this deal was around 3 points if I did my math correctly. I saved these folks a lot of money (luckily they were referred to me by a friend).
Yet, with this bill, Congress wants to punish me and my company and all of the other good mortgage brokers out there for this? Who really is the bad guy here? At the very least, Congress get your facts straight and go after the appropriate culprits of this mortgage crisis. Is there any wonder why Bank of America had to "loan" Countrywide nearly $2 Billion to keep them from financial ruin?
Now, what is a point? A point is 1% of your loan amount. For example on a $200,000 mortgage - 1 point is $2,000. So for every increase in interest rate of .25% the investor who is putting up the money for your mortgage pays the mortgage originator 1 point. This money is the same no matter who does your loan.
Mortgage brokers came into the mortgage loan business in the 1980's. Since that time, bankers have always had mortgage brokers in their cross hairs. Every hiccup in the mortgage and real estate industry invariably gets blamed on the mortgage brokers. With mortgage brokers arranging nearly 60% of all mortgages in the US, I can see why because we make a decent living working with folks on the ground at the local level. Banks end up with your loan typically anyway because we're taking it to their wholesale department and skipping their retail folks. If this bill passes Congress, you might be forced - with no choice - to start going to the bigger banks and their retail departments again where they have less flexibility, product lines etc. Aren't there anti-monopoly laws in this country?
Like I just said, big banks have always made it difficult for mortgage brokers to do business. For example, speaking of the Yield Spread Premium, mortgage brokers have been the only part of the mortgage industry who have been required to disclose the information on our Good Faith Estimates as to how much we expect to get paid from the lender for arranging your loan - this is the YSP. You get the Good Faith Estimate, or at least you are supposed to get one from mortgage companies when you give them a mortgage application which happens when you are shopping for a mortgage. Mortgage bankers, and all other types of lenders - credit unions, federal banks, state banks, and regional banks DO NOT have to disclose how much money they are making on the YSP. They can give you quotes like the couple I just mentioned and there are no checks and balances in the system if mortgage brokers are forced out of the origination business. What's fair about this system?
So, think about this for a second, I told you earlier, mortgage brokers arrange (originate) about 60% of all mortgages in the US (and they have been doing this for at least 10 years), are mortgage brokers really doing that bad of a job for home buyers and homeowners in the US? My answer is a very loud NO! If we were, you would not use us to get so many mortgages. Give me a break Congress, you are going after the wrong crowd. In a meeting earlier in 2007, I heard the head of the Arizona Department of Financial Institutions suggest that their department receives more complaints about mortgage bankers than mortgage brokers by a factor of 2 to 1. Again, who is the bad guy here? Wake up Congress.
Attached is my personal response sent to our congress folks to oppose this very harmful legislation. Part of this letter was prepared by the National Association of Mortgage Brokers and some of it was modified by me.
"I am writing today as a concerned small business owner involved in the mortgage origination industry. I am a member of the Arizona Association of Mortgage Brokers (“AAMB”) and the National Association of Mortgage Brokers (“NAMB”). H.R. 3915, the "Mortgage Reform and Anti-Predatory Lending Act of 2007” was expected to be marked-up by the House Financial Services Committee (“HFSC”) on the morning of Tuesday, November 6, 2007. I am very concerned about this bill as introduced and amended. I fear that, as currently drafted, it will hurt me, every small business mortgage broker, real estate agents, and most importantly on a very broad reach – your constituency – your voters - consumers. Please do not support H.R. 3915, unless certain provisions in the bill regarding my ability to earn a living are clarified, and how it impacts consumers' ability to purchase or refinance their home.
As introduced, H.R. 3915 contains a provision under Title I, Subtitle B, Section 103 that may eliminate an originator’s ability to receive direct and indirect compensation. As currently drafted, this provision may eliminate my income (the yield spread premium (“YSP”)) and force me and many other small business mortgage brokers to close our doors. My consumers want zero-point or no cost loans. For me to make a living and compete with the large banks, I need to be able to earn indirect compensation as part of the rate or financed into the mortgage amount. If this passes, Big Banks will still be able to provide no costs loans and pay their loan officers overages from release premiums they receive in the secondary market. Only the small business i.e. mortgage broker will be prohibited from offering no costs loans. I urge you and your colleagues to support an amendment making this change under Title I, Subtitle B, Section 103(b)(3).
IF YOU CAN READ THE BETWEEN THE LINES HERE, ALL THE “BAD” ORIGINATORS WHO YOU – THE POLITICIANS TRYING TO ANSWER TO YOUR VOTER BASE - ARE TRYING TO PUT OUT OF BUSINESS WITH THIS BILL CAN STILL GO WORK AT A BIG BANK AND STILL DO THE THINGS THEY WANT TO CONSUMERS AND NOT HAVE TO DISCLOSE IT.
MORTGAGE BROKERS DISCLOSE THE YIELD SPREAD PREMIUM TO CONSUMERS. BIG BANKS DO NOT. THEY NEVER HAVE, YET BIG BANKS USE THIS MONEY TO PAY THEIR ORIGINATORS, PROCESSORS JUST LIKE MORTGAGE BROKERS. CAN YOU PLEASE BE FAIR ABOUT YOUR LAW MAKING? THE FOLKS, BAD ORIGINATORS, WHO YOU ARE TRYING TO CUT OUT OF THE BUSINESS CAN GO HIDE WORKING AT A LARGER BANK. YOUR BILL DOES ADDRESS THIS BY REQUIRING ORIGINATORS NO MATTER WHERE THEY WORK TO BE LICENSED. GREAT! BUT DO NOT KILL EVERY GOOD WORKING, ETHICAL, MORTGAGE BROKER IN THE INDUSTRY BY YOUR INSIDIOUS ATTACK ON YIELD SPREAD PREMIUMS.
In addition, I do not support Title III of this bill, which addresses high-cost mortgages, unless significant amendments being offered are accepted by the HFSC (House Finance Sub Committee). We believe the practical effect of Title III is to create a de facto federal usury statute. The combination of loan cost limitations together with prohibited practices will stop lending in this small market segment. Let the borrower shop, compare and decide what is best for them, not create a federal government limitation which would limit access to deserving borrowers based solely on price.
Please do not support H.R. 3915 unless:
(1) Title I is amended to preserve both the consumer’s choice to finance fees and costs, and the creditor and investor’s ability to directly compensate mortgage originators for such fees or costs; and
(2) Title III is stricken or significantly altered so that, in effect, there is no de facto usury ceiling and consumers have the ability to access credit.
Thank you for your time and consideration of this issue."
I mean no disrespect with this article, it's just that some very powerful people who think they are doing the right thing, don't know our business and are going to hurt a lot of folks in buying a home, earning a living etc. This includes real estate agents. Realtors, can you imagine what it will be like if the only place your clients can go for a loan will be to a bank? What about competition - there will be none, banks can then do what they want when they want. How much worse will it get then?
Written by Dale Stouffer, Mortgage Broker. Dale has been a mortgage broker since 1996. He is a former instructor with the Pennsylvania Association of Mortgage Brokers where he taught mortgage professionals to do business ethically and pro consumer.
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