New Obama regulation to limit agent commissions to 1.2% total

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

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.

Yield Spread PremiumWhen 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 Socialism calls personal profit evilopposed 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.

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I started writing on Active Rain in 2006 when I was representing the mortgage industry. I am no longer in that industry and many of the older posts contain outdated information. Please do not contact me for LENDING or MORTGAGE questions but rather contact a licensed mortgage professional from your area. I have always been in marketing and branding and that is still what I do. Thanks for reading!

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Re-Blogged 11 times:

Re-Blogged By Re-Blogged At
  1. Nestor & Katerina Gasset 02/09/2010 06:17 AM
  2. Amy Law 02/09/2010 06:38 AM
  3. Liz Loadholt 02/09/2010 07:51 AM
  4. Sandy Wagner 02/09/2010 08:24 AM
  5. Tanya Kovacheva 02/09/2010 09:09 AM
  6. Stacie Wells 02/09/2010 10:44 AM
  7. Larry Bettag 02/09/2010 11:57 AM
  8. Gerry Suarez Jr. 02/09/2010 11:58 AM
  9. Gene perez 02/10/2010 05:37 AM
  10. Travis Newton 02/10/2010 05:43 AM
  11. Jeanean Gendron 02/18/2010 01:20 AM
  12. Christa Hobart 03/01/2010 02:46 AM
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Rainmaker
230,630
Joyce Thomas
REMAX Home Expert Realty - San Tan Valley, AZ
Your Home Sold Guaranteed!

I had not heard about this one yet.  Very interesting information and post. You definitely got my attention and I hope something like this never happens.  Its unfortunate that it possibly could though.

Feb 10, 2010 12:28 AM #97
Rainer
120,359
Kyle Jan
Scottsdale, AZ
Phoenix AZ Homes for Sale

Great post and the comments are also great.  I love how you point out the people who do not read the whole post before commenting.  They are probably some of the same people who jump on the YSP bandwagon without having a clue.  Brokers have to disclose their YSP, why don't the banks disclose their SRP?  We all know why, no presence on the hill.  Politics as usual. How many banks adjust their fees to make a deal work?  How many banks meet with the customer face to face to take the loan application and sign disclosures?  How many bank loan officers give out their cell numbers so the customer can get their questions answered 7 days a week?  How many bank loan officers show up to the closing to answer questions?  It is obvious whose side I am on and I have been on both sides of the fence.  Neither side is perfect, but I know which side tends to care more about the consumer more. 

Feb 10, 2010 01:31 AM #98
Rainer
80,388
Lynne Ruffin
Century 21 Nachman Realty - Norfolk, VA
Century 21. The Gold Standard.

Wow!  My heart dropped when I read the title to your post.  I'm glad my first reaction was to read every detail to find out - WHY? 

Whew!  I feel much better now having read the entire post. 

Yes!  Great way to get your point across. 

Feb 10, 2010 03:09 AM #99
Rainmaker
179,192
Dana Scanlon
Keller Williams Capital Properties - Bethesda, MD
Bethesda MD- Award-Winning Bethesda Realtor

I would like to see you document more clearly some examples of YSP. My understanding is that higher YSPs are earned for higher spreads. Perhaps YSP should be disclosed on GFEs.

I do agree that anyone involved in lending, whether bank, credit union or what have you should have the same licensing requirements.

Feb 10, 2010 03:27 AM #100
Rainmaker
26,335
Colleen Craig
Southern California Mortgage Professional - Santa Clarita, CA
Socal Mortgage Pro

Thank you for this!  I'm glad I read on before I re-blogged to all my realtors and said SEE!  Now do you get it? lol  Great blog and way to get everyone's attention........Maybe NOW some others in our industry will feel our pain and not just close their ears thinking it doesnt directly effect them.....although it will.

Anyone who abused ysp is surely out of the business by now and we are all stuck PAYING for it.....

Feb 10, 2010 03:34 AM #101
Rainmaker
60,128
Justin Messer
Supreme Lending USDA, FHA, and Conventional Loans - Peachtree City, GA
Residential Loan Officer, USDA Rural Housing Loan

Obama strikes again!  I wonder what his administration will come up with next!  Just Kiddling, but not really.  Thanks for a great blog.  So many people have no idea what they are talking about when they hear one idea on TV or read some rant on the Internet.

Here's an idea, how about we all just work for FREE!

Feb 10, 2010 04:09 AM #102
Rainmaker
275,203
Ken Cook
Content, coding, marketing, host. - Marietta, GA
Content Marketer/Creator

Everyone - as you can imagine it's difficult when there are so many comments to reply to each one individually but I do want you all to know I read every one and thank you much for commenting. I will make a couple of short points and let you get back to your regularly scheduled life:

YSP Disclosure - why should brokers be required to show their commission on the interest rate and bankers not be required to do so? Some comments said YSP should always be disclosed and upfront. I ask you why? I'm not disagreeing that it should I am asking you to educate us all as to why YSP should (and it is by the way, it is now on the Good Faith Estimate and if you had taken my class for free you would know that) be disclosed and if you really believe that where do we stop disclosure? Green beans? Gas prices? If you think brokers and banks should be required to disclose their profit upfront what about doctors, lawyers, hookers, and airlines? Do you just oppose profits or do you really believe brokers are such crooks they should be singled out to disclose their profit when others are not? Tell us what the difference is and why you support this?

Once again - if you commented about brokers making commission that bankers do not you are very mistaken. I'm not guessing, I know. I have been loan officer, broker, banker and bank loan officer. Rates are the same, commission has been the same until now when broker's commission has been taken away.

Feb 10, 2010 04:19 AM #103
Rainer
154,758
Ted Tyndall
Davidson Realty Inc. - Saint Augustine, FL
FL Homes for Sale-Palencia, World Golf Village,Nocatee,St. Augustine

Good article on how everybody's paycheck should be cut except those in office.

Feb 10, 2010 04:28 AM #104
Rainer
325,141
Jenna Dixon
DRA Homes | Cobb County Real Estate - Marietta, GA
Assoc Broker - Let's Talk Cobb County Real Estate

Ken, EXCELLENT JOB!  Only by scaring the mess out of Realtors like this could you draw such attention to a very important issue.  Your explanations are right on target and the predictions about the effects of eliminiating YSP are dead on.  My husband has been a mortgage LO for a brokerage for years and without YSP, brokers will go away, thereby eliminating the competition among banks.

In the end, the entire industry will be hurt by increased fees, climbing interest rates, a lag in home sales, etc, etc.

BTW, Realtors reduce their fees everyday to accomodate the market.  Last I heard, Congress got a raise for the mess they helped create and it's BONUS SEASON at most banks that received TARP money.

Feb 10, 2010 04:39 AM #105
Rainer
80,845
Gene perez
Greater Mortgage Solutions & Valley Hills Realty - Santa Maria, CA

this is just unbelievable ,,,, everyone that is truly responsible for this mess that created and implemented ways to profit millions and billions are making even more money.... note banks dishing out record bonuses this year and congress getting a raise are you kidding me ...... is unbelievable

Feb 10, 2010 05:37 AM #106
Ambassador
1,131,564
Craig Rutman
Helping people in transition - Cary, NC
Raleigh, Cary, Apex area Realtor

The moment I read the acronym NIMROD, I knew this was a spoof. But your point is very well made.

Great job withj this post my friend!

 

Feb 10, 2010 05:58 AM #107
Rainer
41,131
Patrick Randles
Nova Home Loans - Tucson, AZ

When you go buy a used car, is there someone there to cap how much the dealer can make? Does the term "Buyer Beware" mean anything? It is the buyer's obligation to protect themselves from unscrupulous folks. When did the gov't decide to regulate how much money could be earned? The whole thing is ridiculous. What it comes down to is just what you have stated: the banking lobby doesn't want to share with brokers any longer and the meltdown gave them the ammo to point the finger at mortgage brokers...Good Post!

Feb 10, 2010 06:50 AM #108
Ambassador
1,393,664
Erica Ramus
Erica Ramus - Ramus Realty Group - Pottsville, PA - Pottsville, PA
MRE, Schuylkill County PA Real Estate

I read NIMROD and my first thought is this must be a joke!

Feb 10, 2010 07:37 AM #109
Rainmaker
222,196
Scott Baker
www.eHomeReports.com Coldwell Banker West Shell - Liberty Township, OH
Realtor Homes for Sale in Cincinnati, West Chester, Mason, OH Area

You definitely got all the Realtor's attention. For government to regulate what ANYONE or ANY company can charge or make in profit is wrong. We should never allow it to happen anyone, NEVER. Because guess what, soon they will be coming after your's.

Feb 10, 2010 07:57 AM #110
Rainmaker
155,885
Aaron Silverman
SuccessfulRental.com, Bluewater Property Management, LLC and Lowcountry Turnkey Properties, LLC - Charleston, SC
Improving Real Estate Experience through Education

This will end up hurting the real estate market.  Realtors should be considered, because it will decrease the buyer pool.

Feb 10, 2010 11:09 AM #111
Rainmaker
1,442,380
Donna Harris
Donna Homes, a PLR affiliate - TexasRealEstateMediationServices.com - Austin, TX
Realtor,Mediator,Ombudsman,Property Tax Arbitrator

You scared me there for a second... I was reading thinking, how in the world could they limit our commissions when our commissions should be negotiatiable and not set?  Then, I was thinking about the $35k condo I'm going to show in a couple of days and how I could possibly work for only .6% of that, $210... NO FREAKIN" WAY!!  Glad it wasn't true!

Feb 10, 2010 12:30 PM #112
Rainmaker
116,449
Jason Burkholder
Weichert, Realtors - Engle and Hambright - Lancaster, PA
Sales Manager, Assoc. Broker, Realtor, e-Pro

Great post, I agree, not many people truly understand YSP, thanks for explaining it well!

Feb 11, 2010 01:51 AM #113
Rainmaker
857,768
Maureen Megowan
Remax Estate Properties - - Palos Verdes Estates, CA
Palos Verdes Real Estate Blog

I agree that mortgage brokers should not be limited on charging for their services.  I do think that the added disclosures about loan broker compensation will add transparency and competition will keep fees at a reasonable level for all.

Feb 11, 2010 06:06 AM #114
Rainer
70,687
Bill Nazur
Corona, CA

Ken...I won't re-hash so much of the good commentary, but I did a double and triple take when I saw the NIMROD acronym....it was a genuine WTF moment.....extremely well done!

We will have to talk soon.....hope all is well.

Feb 13, 2010 08:48 AM #115
Rainmaker
90,675
Julie Chroust
Julie Chroust, Bay Equity Home Loans, LLC - Walnut Creek, CA
NMLS# 249458, Senior Loan Officer

Holy Crap.... I need a drink now.

May 10, 2010 05:01 PM #116
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