Here’s a well articulated email I received today from mortgage professional Jon Bodan of The Perpetual. I think we should all read, discuss, distribute and act upon it:
This is insane!!! (MG notes: This link was provided on LoanToolBox forum courtesy of Jim Sahnger. You’ll find what Jon’s referring to on p. 43240 and 43241).
You need to send this to everyone you know in our industry and encourage them to call their elected officials and RIGOROUSLY show your opposition to this rule-making.
Where is NAMB and GAMB on this? Where is the grass-roots movement to make our voices heard? Their website is still dealing with HVCC which is obviously old news. Their website’s agenda? 2007. Are they asleep at the wheel?
Because of the mortgage & financial meltdown, Bernanke has proposed that the Federal Reserve outlaw broker & LO compensation from YSP or other indirect compensation from a lender. This will potentially do one of a couple of things:
- Put us out of business due to cutting our revenue on every loan, potentially by 50% or more.
- Cause consumers’ costs to increase because we have to charge upwards of 2% on every file on the front.
- Potentially cause thousands of people in our industry to lose their jobs. Unemployment is already at 10%.
The fact is, brokers and banks have had an unlevel playing field for years. As a broker, we are required to disclose multiple times to the borrower, in many different formats, that we receive YSP for doing their loan. Banks have not been required to disclose it, even though they earn the same thing, in the same way – it’s just called SRP or “servicing released premium:
Here are how we have to disclose this information:
- On the current GFE as “YSP 0-5% POC by lender to broker if applicable”.
- On the new GFE going into effect on 1/1/10 it is included in our origination fee, and then backed out as a credit, which is MASSIVELY confusing to look at, even to me.
- On the Mortgage Loan Origination Agreement.
- On the Brokerage Business Contract
- On the HUD-1 Settlement Statement
- On the Attorney Closing Instructions that borrowers normally have to acknowledge.
- On the Reg Z disclosures that the lenders send to the borrower after application.
I think the consumer gets it! The fact is, they don’t care. You tell a consumer “we get paid by the banks to place your loans with them; there are many lenders that compete over my business as a broker, and so they pay us in some cases to put your loan with them”. They simply don’t care. I have been in this business for 15 years. Not one client has had a problem with this, and I tell them upfront in every case that it happens.
America is a capitalist society. It is based on people providing goods & services to consumers and businesses that the buyer values, and they pay for it. This proposed rulemaking, at its core, is an attack on capitalism.
If you go to Kroger and buy a can of corn, the grocery store probably paid $.25 for it wholesale, but they sell it to you for $1. Why do they mark it up? Because they have a big, fancy store with overhead and employees to pay.
If we do a loan for someone, we buy the money at wholesale at the “par” rate, and we sell it to our clients at retail, thereby earning YSP. This keeps us from having to charge the borrower more money upfront which they typically cannot afford. Everybody wins, we make a fair amount for our efforts, and the borrower is happy with the deal they got, ostensibly (and if not, it’s their responsibility to go somewhere else that will make them happy, that’s their right as a consumer). But we have the same overhead, offices, professional liability insurance, FHA renewal audits, licensing fees, bond fees, in GA we have to W2 every employee so we can’t save the FICA and etc, and the list goes on.
The argument is made that “a mortgage is the biggest financial product that a consumer will ever purchase” so it’s wrong for the loan originator to make money on doing the loan.
This argument is illogical and flawed. If you go to Kroger, and you can’t afford the can of corn at retail, you don’t eat. But food is obviously a requirement for life. So why would it be any different in the mortgage industry?
Owning a home, or having the lowest imaginable rate on a mortgage is not a right. It is a privilege that a consumer can earn through proper & wise financial management. The professionals that help this happen for a consumer are providing a much-needed service for the consumer by guiding them through the mortgage process – especially now, and more than ever before. It seems that the proposed rules are geared towards not steering a borrower to a “risky” loan product. The fact is, though, there are no “risky” loan products now. Everything is done via the agencies. There are no negative-amortization or subprime loans in the marketplace, and there have not been any for about 3 years now. The only options available to the average consumer are Conventional, FHA, VA, rural housing, and at a low loan-to-value a highly qualified borrower might be able to obtain a home equity line of credit.
As usual, the government is years behind the curve on this – the MARKET corrected the excesses of the past by ceasing to offer those products. Why shoot and kill the horse when it’s out of the barn already? This proposed rule makes absolutely no sense at all.
All of us need to put our heads down and fight this thing. The Federal Reserve already more/less owns our banks & financial markets. Are we going to stand by and let them own us too?
Contact your elected officials:
http://www.house.gov/house/MemberWWW.shtml
http://www.senate.gov/general/contact_information/senators_cfm.cfm
This is a great examples of politicians making laws without knowing anything about the business itself. They try to help the consumer but in the end they hurt them through more red tape. They are trying to make ammends for all the mistakes of the past few years, but this is just more nonsense that will cause more problems.
The unintended consequences of actions like this and HVCC is to favor big business. The big banks which our taxes support will benefit while many of us will go out of business.
Jon, very well written, you are right on. I think your best question is where is NAMB? Have they become so tight with the banks that they have now forgotten about us. Leave it to this administration to continue to castrate capitalism. I'm writing Rep. Burgess and Sens. Cornyn and Hutchison next. Thanks for the heads up.
It is very important that you read the information. Put the book down you are reading this weekend and go through this document. It is 195 pages in length and while not exciting, the impact to our business is significant.
It does say that the compensation impact will be equally felt by both bankers and brokers and allows for additional overall compensation to be paid to brokers based on overhead, etc.
Below is some of what I pulled out of the post I placed on Loan Toolbox that I will share with you also.
Remember, if you do submit comments to the Fed for review, do not whine. Be thoughtful that many of the examples presented to Congress from consumer groups make us look like thieves and if you complain you can't make 3-4 points or whatever, you reinforce their image.
These are some sections from the document that I felt you should see first that stand to impact your comp.
10. Principal loan amount. A loan originator’s compensation may be based on the loan amount. Thus, an arrangement that pays a loan originator a fixed percentage of the loan amount does not violate this section even though the dollar amount received by the originator will vary from transaction to transaction and will be greater as the loan amount increases. Section 226.36(d)(1) does not prohibit an arrangement under which a loan originator is paid a fixed percentage of the loan amount, subject to specified minimum or maximum dollar amount. For example, a loan originator’s compensation may be set at one percent of the principal loan amount but not less than $1,000 or greater than $5,000.
fl36(d)(2) Payments by persons other than consumer.
1. Compensation in connection with a particular transaction. Under § 226.36(d)(2), if a loan originator receives compensation directly from a consumer in a transaction, no other person may provide any compensation to the loan originator, directly or indirectly, in connection with that particular credit transaction. The restrictions imposed under § 226.36(d)(2) relate only to payments, such as commissions, that are specific to, and paid solely in connection with, the transaction in which the consumer has paid compensation directly to the loan originator. Thus, compensation paid by a mortgage broker company to an employee in the form of a salary or hourly wage, which is not tied specifically to a single transaction, does not violate § 226.36(d)(2) even if the consumer directly pays a broker a fee in connection with a specific transaction.
2. Compensation received directly from a consumer. Under Regulation X, which implements the Real Estate Settlement Procedures Act (RESPA), a yield spread premium paid by a creditor to the loan originator may be characterized on the RESPA disclosures as a ‘‘credit’’ that will be applied to reduce the consumer’s settlement charges, including origination fees. A yield spread premium disclosed in this manner is not considered to be received by the loan originator directly from the consumer for purposes of § 226.36(d)(2)
Page 180 #3
3. Lowest interest rate. To qualify under the safe harbor in § 226.36(e)(2), for each type of transaction in which the consumer has expressed an interest, the loan originator must present the consumer with at least three loans that include the loan with the lowest interest rate, the loan with the second lowest rate, and the loan with the lowest total dollar amount for discount points and origination points. To determine the loan with the lowest interest rate, for any loan that has an initial rate that is fixed for at least five years, the loan originator shall use the initial rate that would be in effect at consummation. For a loan with an initial rate that is not fixed for at least five years: i. If the interest rate varies based on changes to an index, the originator shall use the fully-indexed rate that would be in effect at consummation without regard to any initial discount.
Very informative info here guys…thanks
The public is not aware of the plight of brokers and appraisers. If we could getlarge group to demonstrate in front of the Federal Reserve with our families and bring the press, there will be much greater awareness to the impact of these actions on individuals and families.
This is very important information for everyone in our industry to know. I have contacted my representative about this and have got response back on this issue.
Eau Claire Mortgage
Mark – Thank you for sharing. You and I have had extensive discussions surrounding this issue and quite frankly, the lack of professional direction and leadership in DC from NAMB is shocking! While MBAA does a fantastic job for mortgage bankers, the same is not true for mortgage brokers.
Regards – Tony Gallegos
YSP isn't going away, it is being reformed. I have heard too many friends in the broker world, say i have to go to this bank or maybe we should be a correspondent?? It doesn't matter.. the new rules that go into effect **** IF THEY EVER GO INTO EFFECT**** will effect all loan officers and YSP will not go away it will still be paid, but not paid based on charging a higher rate!
It makes sense for the Lender or Bank to pay the LO on each loan originated, but what they say doesn't make sense, is giving the customer a higher rate than required, for the sole purpose of making more money for the LO.
Overall, I’m very happy to hear that the worst isn't coming and the broker world is here to stay!!
It gives more informative message for me. Thanks for sharing it.
Nice post here. It does make senses, appreciate for sharing.