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Here We Go Again, DC Empowering the Big Banks (YSP Wars)

By Ken Cook

Real Estate Technology with Content, coding, marketing, host.

April 29, 2009 08:10 AM

Say it isn't so! H.R. 1728 (did not get passed in the Senate the last time)

Let me explain this to you One More Time Brad Miller and Mel Watt. Side question: How does such an obviously beneficial to big banks and destructive to mortgage brokers legislation get introduced by Congressmen from a notorious big banking area?

What Yield Spread Premium is NOT

Yield Spread Premium is not a unique and only way for loan officers to rip off home owners and home buyers (any more than any other way).
Yield Spread Premium is not something a mortgage broker can make up on their own.
Yield Spread Premium is not a secret - in fact by Federal Law (RESPA) it MUST be disclosed.
Yield Spread Premium is not by any stretch of the imagination "the" rip-off

Now, Brad Miller and Mel Watt, let me tell you how to rip people off:

Charge absolutely no Yield Spread Premium but instead get a lenders license and charge more than a broker would without having to disclose it. Do you even know this boys? Of course you do! How else would big banks be able to lobby you, or worse, and have you come up with such a damaging piece of legislation?

Loan officers of Federally chartered mortgage banks who HAVE NO YIELD SPREAD can rip off the people easier than any mortgage broker. Countrywide, Wells Fargo, Bank of America - none are required to disclose their back end profit and EVERY MORTGAGE BROKER IN AMERICA is required to disclose EVERY PENNY they earn. Not ONE direct lender is. Even small lenders are not required to disclose their earnings and one of the ways they are encouraged to become lenders, in fact one of the very first words out of the mouths of the Big Banks is: once you have a warehouse line and become a correspondent you won't have to disclose YSP anymore AND YOU CAN CHARGE AS MUCH AS YOU WANT BECAUSE YOU DON'T HAVE TO DISCLOSE!

I know this because I am not a broker - I am a LENDER. I do not have to disclose YSP. I could, if I were so inslimed ... er inclined ... "put the screws" to my borrowers. And guess what? You get rid of mortgage brokers and you'll only have lenders and lenders will be free to pillage. Why? No highly regulated competitors.

Some will say, "Ken, your over reacting." Okay, you're right. A few people are conspiring against my industry to make a law that will not keep even one person from being "ripped off" and at the expense of lower closing costs.

Why do I say lower closing costs? You know all those "no cost loans" you see advertised by people like Bank of America? Those are achieved by raising the interest rate in an amount commensurate with covering the closing costs. YES! Bank of America uses exactly the same tactic as ANY MORTGAGE BROKER. The difference? The broker is required by Federal law to call it YSP and disclose every penny of it. Bank of America? Not required to disclose it EVEN THOUGH IT IS THE SAME AMOUNT USED FOR THE SAME PURPOSE.

Okay, make it fair - either all originators disclose all of their revenue or none do. Why only require the mortgage broker to do so and not the banks? Oh, the National Association of Mortgage Brokers doesn't have pockets as big as those other organizations ... that's what I thought.

You know Georgia, and a couple of other states, have Fair Lending Acts which limit the amount of compensation to brokers REGARDLESS of the type of loan so long as it is a RESPA covered loan. Right now the biggest rip-off is revers mortgages. In Georgia a banker can make as much as they want by charging almost any interest rate they want and there is nothing the State can do about it because bankers do not disclose back-end compensation. Which is what makes all of these YSP related allegations and regulations about as moot as a breath in a whirlwind.

You are right - I hope I am over reacting enough to WAKE YOU UP!

Now if you read this far and you know anything about me you know I have long pushed for national licensing of ALL loan officers. This bill does not meet that requirement for, once again, it does not require for every loan officer to be licensed. Nope, if you work for one of the big banks you won't need a license.

I had fun with text formatting on this article. Should have gone full HTML!

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Lenn Harley

Lenn Harley, Homefinders.com, MD & VA Homes and Real Estate - Leesburg, VA

Real Estate Broker - Virginia & Maryland

Jeff is, of course, absolutely correct. They know precisely what they are doing, exactly what the lobbys for the banks have paid them to do.

Apr 29, 2009 09:42 AM

Ken Cook

Content, coding, marketing, host. - Marietta, GA

Content Marketer/Creator

Lenn - I am convinced that most industry people do not understand YSP - especially on the sales side. But that's why we're here - you and I - to educate people!

Donne - bingo. It kills off the competition. I wonder what the price for that little piece of legislation is?

Sardi - it is too sad. It's sad these things ever even get considered but it also makes me wonder about bills affecting other industries that we don't know about like insurance, medical or even long distance.

Richard - congress usually does not want to here from folks like us. Compared to the "industry people" they listen to we are poor and ignorant (tic).

Jeff - you just summed it up in a nutshell. They have plenty of foresight ... and international vacations, luxury cruises, campaign contributions, donations to their "charity".

Apr 29, 2009 09:46 AM

Jeff Belonger

Social Media - Infinity Home Mortgage Company, Inc - Cherry Hill, NJ

The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans

Ken... well done. I agree with everything that you stated and yes, Jeff Corbett summed it up well. One thing that I do want to make people aware of is just for the fact that you can still compare, even if I don't disclose YSP, yet my competitor, the broker, does have to show YSP... we can complain about Banks ripping off people, but if both sides are honestly comparing apples to apples, no matter if you have to show YSP or not, the end result should be the same. Rate + total lender fees = Total cost to borrower. I just wanted share that just because a bank or banker doesn't show YSP, that they are making more money.... at least I don't or did I at any other company I ever worked for.

Overall, the argument would be that the large banking industry and those in gov't, are trying to push brokers out. And as Jeff C. stated, it push many brokers out of business. Ken, again, excellent post. And congrats, 2 features in 2 days. ;o)

jeff belonger

Apr 29, 2009 10:13 AM

Scott Baker

www.eHomeReports.com Coldwell Banker Realty - Liberty Township, OH

Realtor Homes for Sale Cincinnati/Dayton Ohio

So it sounds like basically a scheme to reduce the amount of competition. Would you say that is accurate? Less competition is never good for the consumer.

Apr 29, 2009 10:21 AM

Richard Byron Smith, NMLS #184479

Mortgage Loan Officer, Fairway Independent Mortgage Corporation NMLS #2289 - Chattanooga, TN

Mortgage Loan Officer

BTW, HR 1728 just passed committee, without the HVCC delay amendment.

http://www.reuters.com/article/governmentFilingsNews/idUSN2944256220090429

Notice in the article the reference to risk sharing. Wide implications.

Richard

Apr 29, 2009 10:29 AM

Lana Robbins Realtor ® Licensed Real Estate Broker

Aloha Kai Real Estate - Clearwater, FL

Licensed in Florida, Washington, and Hawai'i

I'm not surprised.

Apr 29, 2009 10:29 AM

Marcus Valdez

Berkshire Hathaway Rocky Mountain Realtors - Fort Collins, CO

Aren't we trying to get rid of personal accountability, competition? Shouldn't the government run everything? They do such a good job no matter what party is in office. (sarcasm disclosure can be downloaded upon request)

Apr 29, 2009 10:50 AM

Gerry Suarez Jr.

New American Funding NMLS 6606 - Orlando, FL

FL Mortgage Guru

and all this at a time when the average borrower needs the expertise, care and representation they will only get from broker or smaller lender...

Yes the big banks are pushing hard to eliminate their competition, at the same time they smother us with overlays that prevent most people from qualifying. That will be a big help to consumers!

Great post Ken. Rally the troops- we need to go to war on this one!

Gerry Suarez, Jr.

Your FHA Loan Pro!

Apr 29, 2009 11:42 AM

Russ Ravary ~ Metro Detroit Realtor call (248) 310-6239

Real Estate One - Commerce, MI

Michigan homes for sale ~ yesmyrealtor@gmail.com

In Michigan loan officers have to be licensed and take tests but bank employees dont.

Apr 29, 2009 01:56 PM

Jason Crouch

Austin Texas Homes, LLC - Austin, TX

Broker - Austin Texas Real Estate (512-796-7653)

Ken - Nice job here (as if I am surprised). I didn't realize that they were looking to do this garbage.

Apr 29, 2009 02:07 PM

Larry Bettag

Cherry Creek Mortgage Illinois Residential Mortgage License LMB #0005759 Cherry Creek Mortgage NMLS #: 3001 - Saint Charles, IL

Vice-President of National Production

Ken...get involved with www.nwyc.com. It's national write your congressman. It's awesome, but you're so right...the people who write these bills don't really understand what they're writing about. Good stuff bro.

Apr 29, 2009 02:24 PM

Katerina Gasset

The Gasset Group & Get It Done For Me Virtual Services - Provo, UT

Amplify Your Real Estate & Life Dreams!

Ken- Well, let's see, the big banks are now about nationalized, the big bro is telling them what to do, screw the folks, congress does not have a clue, on and on and on.

Every day I hear another idiotic disconnect from the people bill getting introduced in congress. They all need to be voted out of office, all impeached for treason against the people.

Their intent to regulate something they know nothing about just makes a bigger mess.

A great read: The Forgotten Man. Amity Shlaes. Congrats on your star. Katerina

Apr 29, 2009 03:30 PM

Chris Olsen

Olsen Ziegler Realty - Cleveland, OH

Broker Owner Cleveland Ohio Real Estate

Hi Ken -- The mortgage industry as a whole needs to be simplified and made more transparent so consumers can compare apples-to-apples without having to have a Ph.D in Mortgage Loans. The same thing applies to real estate, but in a different context. I agree with you that the playing field is not level for brokers.

Apr 29, 2009 03:50 PM

Lane Bailey

Century 21 Results Realty - Suwanee, GA

Realtor & Car Guy

I know you have been on this crusade for a while... and it is worthy. It is amazing how much damage Washington can do to consumers in the name of protecting them.

Apr 29, 2009 04:08 PM

JB Brookman

JB Brookman Photography - Franklin, TN

High School Senior Portrait Photographer

Awesome truth, Ken... and Scott Baker nailed it... "Less competition is never good for the consumer."

Apr 29, 2009 07:13 PM

Joe Pryor

The Virtual Real Estate Team - Oklahoma City, OK

REALTOR® - Oklahoma Investment Properties

Ken, your problem is that you don't possess any passion. I read your article to the end and by the time I was finished my heart rate was up so much i thought I jogged 10 miles. You're the Man!

Apr 30, 2009 03:31 AM

Ken Cook

Content, coding, marketing, host. - Marietta, GA

Content Marketer/Creator

Jeff B - you are right, apples to apples comparison is what it should be for the borrower but that's not what gets legislation introduced and pockets lined. You're thinking logically and from the end user's viewpoint as do it. Congressmen who introduce legislation like this are thinking from an entirely different perspective.

Scott - basically, yes. There will be no protection for the people.

Richard - we may lose this one. By we I mean we the people of the United States of America. Of course we expected it to pass committee - look at the stinking committee members!

Lana - it just keeps piling up.

Marcus - you're a funny man! And accurate in your humor.

Gerry - if the big banks get their wishes the home owners and buyers will become nothing more than pawns with no place to go for competitive shopping. Someone the other day said, "I always thought the banks were cheaper" when I gave them a quote that beat the bank by about $4300 in closing costs and .25% in rate. I said, "Can you imagine what the big banks would do if they didn't have us knocking their feet out from under them? I can tell you! Brokers started in the mid 1970's and before that banks dominated lending - if you're not old enough to remember what that was like ask your parents or grandparents. The bank was very quick to let you know who was in control and who owned your property - and it was not YOU."

Russ - that's fairly normal and now it's going Federal anyway. We already have a National Licensing System in place which is pretty much a joke. Yes, I could have created a better one :)

Jason - this isn't the first time it has been tabled but with all the vitriol being spewed by unknowing journalists, some of who are on Active Rain, it's just getting worse.

Larry - thanks for sharing that link with the people! Good job.

Katerina - you know all I have to say to that is, "Amen!"

Chris - thanks for your comment. Brokers are the only ones really required to be transparent but people get so confused. In all honesty I have always offered training and explanation to people about YSP and other costs and effects and - this may blow you away - most of them don't care! I actually had a borrower about 2 months ago stop me from reviewing the RESPA documents with her and tell me she didn't care just show her where to sign. I jokingly said, "Oh, I didn't realize you didn't care. Let me go change a few numbers on this and start over." She got my point.

Lane - it seems like forever doesn't it? Thanks for your midnight call - lol.

JB - ditto on your ditto. Thanks for stopping in.

Joe - you should sit in a room with me talking about it! Thank you for your compliments and affirmation that at least some of my passion comes through in text form.

Apr 30, 2009 04:57 AM

Bill Nazur

First Lending Solutions - Riverside, CA

Ken

Been on both sides, so I want to stir the pot a little here. You know I do it with respect and perspective....

Brokers started in the mid 1970's and before that banks dominated lending -this is your quote..what I've seen consistently is that the battle between brokers and direct lenders, like so many other competing yet cooperative industries, are cyclical. As a broker, I always thought it was comical that one could be compensated so highly (meaning 2, 3, 4, or even 5 points). I don't see a banker anywhere having the opportunity to do such a thing.

Seriously, most of the time, a broker beating fees AND rate? Quite rare. Again, you may do it, but don't defend that portion of the industry. It is simply not true.

I know you are passionate as you're one of the ethical ones that believes in full disclosure. This is great, and you should fight for your own survival, but to go out on a limb pitting bank against broker saying that the greater broker community is being screwed by the banks is short sighted at best, and completely misleading at worst. Countless independent studies validate that MOST of the time, brokers are simply more expensive. I believe this is a direct function of NOT capping compensation and NOT limiting YSP for the purpose of benefiting the customer by outlining a tangible benefit in the case of a refinance, or ensuring that in the case of a purchase there is a genuine ability to repay the debt based on verified income and assets. I have countless friends that are brokers and bankers.

I get it. We constantly refer business back and forth to each other, depending on the specific needs of the consumer. Ironically, guess what.....they handle the vanilla loans; direct lenders handle the niche and specialty products including government loans. Their choices are limited, regardless of the 'illusory promise' that they can shop the loan around. Sure they can, as long as it fits in a tidy little box. If underwriting standards change midstream, I see the color disappear from their face as they know they are dead in the water being subject to the change.

I'm not a supporter of Congress' infinite wisdom, or lack of complete intelligence, so I'm not defending their actions on this. I am however clearly saying that you should direct your passion and intelligence towards letting everyone you come in contact with that your knowledge and experience are second to none, which is what they should be basing their decision to work with you on. NOT that you're a BROKER or a BANKER. Those lines will continue to be blurred moving forward.

None of us may like it, but all of us are forced to deal with it. There is PLENTY of business to go around for everyone.

On a side note.....hope you are well!

Apr 30, 2009 05:34 PM

Ken Cook

Content, coding, marketing, host. - Marietta, GA

Content Marketer/Creator

Bill - Before I start let me say on covered loans the only people in Georgia who can make more than about 2.5% on a loan TOTAL (about 1.5% YSP depending on loan mount) are bankers. Georgia is a Fair Lending State with 4.99% cap on total fees including YSP (bankers can make 4.99% PLUS SRP - and often do). Then let me say this very much has to do with level fields of play and elimination of competition. And you know the report I'm going to cite that found, at the time three years ago at least, brokers were priced about the same or less costly on interest rates and closing costs than banks, it has been cited to death, and that's the half-million loan study by Gregory Elliehausen of Georgetown University.

My contention is the malignment of YSP by bankers, yes they do - I are one, and power brokers in Congress resulting in the outlawing of YSP when YSP is not the problem.

As you said about me I will say about you with respect - perhaps you do not take advantage of borrowers as a bank representative but I see it all the time - and around here it quite often comes from loan officers at your company. Worst of all are loan officers from the major lender your bank purchased several months ago. And the big difference is bankers can hide commission even though charging the same amount of interest. That's my point of contention. I am also countering the lack of understanding of or the complete villainization of YSP. For the sake of readers: direct lenders do not have anything called YSP. They have SRP. Study the Georgia law and you will also see I am coming from a different perspective than many others in the nation. YSP is not outlawed but earnings are capped - but NOT for the banker, only for the broker.

"None of us may like it, but all of us are forced to deal with it." (A) I will not go quietly. (B) We're not all forced to deal with this change - only brokers are forced to deal with it - at least the YSP illegalization feature. What this could do, Bill, is let bankers be the only ones to offer "no cost closings" which many people want. Without YSP it will not be possible for the broker to cover closing costs from rate but bankers will still be able to do so - how is this fair to the people? It is, to a degree, banker vs. broker and companies like yours are leading the charge. As a banker and broker I wear both hats - the "plot" to eliminate brokers is no secret and has been openly discussed for many years in upper level banker circles. I know because that's where I play golf, drink martinis and smoke cigars.

There is plenty of business and even though one bank believes they can do it all that would be horrible for the economy and disasterous for the home owners and buyers. Did you actually infer that I am short sighted or misleading? I may have a different perspective and viewpoint than you but I am far from short sighted and the misleading statement isn't cool. Now I will tell banker jokes forever, in comments, on your blog.

We are quite busy and healthy, thanks for asking. Trying to decide whether or not to refill some empty chairs or just remain lean and mean. Thanks for your perspective. I'll make sure you get your vision clear on the topic!

May 01, 2009 06:40 AM

Bill Nazur

First Lending Solutions - Riverside, CA

Now I will tell banker jokes forever, in comments, on your blog. Regrettably, I'm running late but I wanted to address a couple of things real quick.....

Ken, now that is funny. Since you are both banker and broker, look in the mirror before you do tell them jokes....I can't say I write enough these days for you to start commenting on my blog, but you will see me back....

I say you stay lean and mean.....market share means nothing unless you can control quality.

I agree that the company we recently purchased, along with its respective team mates will quickly learn that they have lost their 'liberty' of charging whatever they want.....those days are officially over and for good reason. As far as our legacy folks, they do not have the ability to do what you're alleging in overcharging. We definitely employ risk based pricing....always have, always will, so you will not always have the same pricing for all depending on countless factors that I'm sure you're keenly aware of.

Without YSP it will not be possible for the broker to cover closing costs from rate but bankers will still be able to do so - how is this fair to the people

Regrettably, I can think of maybe one out of 100 transactions (again, probably excluding you in GA) where this is how YSP is used. Sorry, but 9.5 out of 10 times it goes in the brokers pocket with premium pricing being used to help pay for costs. Sad, but true. If we can get it re-written to be applied as you are indicating, I'd agree with you 100%.

I did not infer that YOU were short sighted or misleading, but taken out of context, I stand firm that your comment is. But heck, if it gets you to tell jokes on my blog, then yes, damnit, you're short sighted and misleading. :) Seriously, this company does not want to handle everyones business any more today than it ever has. Market share is important, but quality is far more important. People will learn that quickly if it hasnt already been ingrained in their heads.

I will be back later. Gotta take the Labrador to the vet.

May 01, 2009 11:00 AM