Washington DC (APL) February 9, 2010 - for immediate release.
The Senate agreed today to send SB 60-1A to President Obama for his signature to be signed into law. As part of the National Initiative for Market Recovery Over the Decade (NIMROD) the president leveled his sites on real estate commissions which advisers say, "artificially inflate the sales price of homes as much as 6%" and the administration believes that has contributed highly to the number of properties which are "upside down". The president is expected to sign the bill into law as early as Wednesday. In essence it places the maximum commission to both the listing agency and the buyer's representatives will be limited to a maximum of .6% of the sales price. Mrs. Pelosi indicated this would "leave over $230,000,000 on the table for equity in homes sold over the next 12 months". The plan is to protect buyers from agents who unnecessarily profit on the transactions."
Of course this report, in it's entirety, is a fabrication. However, it is almost exactly what some agents support being done to loan officers and mortgage brokers. The idea that loan officers and brokers should work for a greatly diminished income, brokers now being required to give their commission to the borrower, is just as ludicrous.
When an agent writes they support the idea of not only mortgage brokers giving the Yield Spread Premium (YSP) to the borrower at the closing table it telegraphs their lack of understanding - true comprehension - of what YSP is.
ONCE AGAIN - WHAT YSP IS NOT
The conception is that YSP is something evil stacked on top of the fees and passed to the borrower. I was a broker for about a decade before I became a lender and can assure you YSP is no more easily abused than gas prices, food prices or real estate commissions. Did it get abused? Yes. So have real estate commissions. I have seen agency commissions in excess of 10% on HUD1s. Is it up to me to say that is abusive? No. Who knows what the agent and the seller negotiated? Maybe it included the agent paying for a 30 minute infomercial to be aired on broadcast television.
YSP is not something completely different than banks make. It's call profit. It's what makes people want to go to work and succeed. YSP is the victim of a very evil campaign - and yes I do believe it is evil - as a result of some greedy (and equally evil) rogue mortgage brokerages who did truly capitalize on unwary borrowers. But who are we to say they didn't work five times as hard to get those loans approved as I may have worked to get my loans approved.
Businesses must profit in order to survive or money must be taken from the citizens to support that business through a social program. In simple terms this is called Marxism. Marxism used to be something we passionately opposed but today we have many Marxists leaders making policy.
Here's the biggest lie of all - elimination of YSP was done to help the poor, innocent buyers. That is an absolute lie. If you don't believe me then let something like the above faked news report happen and see how the NAR and every Realtor in America gets up in arms. Don't you dare insinuate for one second that YSP is any different than real estate commission. Don't you dare. Let Congress challenge banks on the profit we make from selling loans on the secondary market - all hell would break loose from the MBA and other banking organizations.
The attack on YSP has been ruthless and will do absolutely nothing to help the economy (in fact it could hurt it) or the home buyer. The elimination of YSP has one purpose: cripple the mortgage brokerage industry and get them out of the sphere of aggressive competition with the banks. I know, there are bloviating, empty headed pundits who would verbally abuse you for that statement but it does not make it any less fact.
FALSE STATEMENT - "YSP is added on top of the interest rates the banks charge". False, YSP is the difference between the very competitive interest rate the borrower pays and the interest rate (called wholesale, you do know what wholesale means do you not?) the mortgage broker pays. What difference does it make how much profit the mortgage broker makes if the borrower gets a very competitive rate? Seriously?
FALSE STATEMENT - "YSP is a type of commission the banks don't make". False, YSP is not only less than the bank makes it must be approved by the bank and in most states is limited as a part of either federal Section 32 High Cost Loans or state limits through legislation such as Georgia's Fair Lending Act. Banks are virtually unlimited in the amount of profit they can make while brokers are openly restricted.
FALSE STATEMENT - "Bank interest rates are lower than broker rates". False, on apples to apples comparison brokers were actually lower through the first part of the 2000s and overall rates were very similar. Closing costs may have been a little higher at brokers because of bank fees added on to brokered loans (underwriting and funding fees).
Are there necessary regulations which make sense? Of course there are. This just happens to not be one of them. Trust me - brokers are my competition so I would not be adopting this stance if it were not demonstrably accurate on every level. Are/were there bad operators in the mortgage industry? You bet! But most of them were in the board rooms and on the trading floor.
The National Mortgage Licensing System could have been a great system ... had it been delivered equally to brokers, lenders and banks. There again the big bank lobbyists won and are given a pass. Bank loan officers are not required to pass the tests or take the classes - they only need to register.