THE END OF THE MORTGAGE “BROKER”

The Dodd Frank Wall Street reform act is a real shame.  It has truly damaged the lending industry as we know it.  Both Dodd and Frank should be thrown out of office on their tails for proposing this nonsense.

Thank you for the excellent information.

Well, it seems that the consensus among the commenters here is that things MAY change.

Experienced and informed industry professionals are clearly not in agreement as to what this all means.

So as is usual when we do not have a clue, we say "time will tell"!

Thank you taking your time to write this post. The government is totally out of control.  I wish they would just leave us all alone so we can rebuild the economy with housing.

Phil

It would be naive to think that the mortgage industry would not change in light of the changes in the Real Estate industry. I thought fixng commissions was violating the Sherman Antitrust laws? In any case, I hope whatever happens regulates the business in a good way, because for sure: without you mortgage guys, we real estate guys are not making any money!

Phil - I think the lawmakers have really messed it up for the borrowers.  Their intention was to protect them and make it easier for them to understand but between the GFE 2010 and the Financial Reform act, borrowers are more confused than ever and have fewer choices at higher average costs.  Because loan officers are now responsible to pay for certain (legitimate) fees that may be undisclosed or under-disclosed (including transfer tax and owner's title insurance - typically seller's fees anyway), the GFE has become more of a worst-case scenario than a good faith estimate; this means that potential clients aren't really seeing the likely fees for their transactions, they are seeing what is likely to be the most they would have to pay.  Furthermore, by taking away YSP, the client loses out on choices such as accepting a higher rate with lower costs or going with a lower rate and paying more up-front.  

The lawmakers need to quit consulting with the special interest executives who don't work on the front lines; they need to consult with the loan officers, escrow and title officers, and Realtors to enact meaningful change.  A three page GFE that lumps fees together and doesn't require a signature from the borrower is not an improvement over a one page GFE that breaks down every fee and requires the borrower's signature.  We need to start over with the so-called improvements.

It will be interesting to see how all of this plays out.  Would hate to see the mortgage brokers gone.. Would be a huge impact of the real estate business and economy..

Phil,

The malaise in the real estate market has caused government to get too involved.  A hedonistic appetite for borrowing, unscrupulous lending practices, and overly optimistic thinking has gotten us where we are.  Government's overinvolvement will be a catalyst for great change some good and some bad.  We will have to see how it filters out.

hmmmm. I have to respectfully disagree with you on this one. Some of the things you said about being a mortgage banker are true and that is why I am a banker and a broker.

January 1st of this year the new GFE came out and as a broker I can't make YSP anymore. If I am sending a loan to a bank as a broker and the bank pays YSP then I can't have it, that money goes to the borrower, if the YSP goes up then the borrower gets a bigger amount of rebate and if it goes down he gets less. In the new rules, it says we can't get paid more by changing the program or the rate and that is true now because changing the rate changes the YSP which goes to the borrower.

I think the system is actually more fair as a broker and I disclose that way more often than as a banker. As a broker, I charge the client what I believe is fair and they agree to it. If they take a higher rate with more rebate (YSP), they get more money credited to them to pay me and/or other costs.

Both bankers and brokers charge LLPA's (Loan Level Price Adjustments) for things like lower LTV, cash out, higher or lower FICO scores etc. I had a refinance loan where the value came in much higher than expected and because the LTV went down on this cash out loan, the bank paid 5/8 point more rebate which on a $600,000 loan turned out to be $3,750 in cash and there was no choice but to give it to the borrowers (which I wa happy to do). If I had acted as a mortgage banker, I could have taken that money, split it with my clients or given it to them. My question to AR members is what do you think the big banks would have done with the extra rebate?

The more things change, the more they stay the same.

Phil:

I had a chance to review the Dodd-Frank bill's provisions regarding yield spread premiums. This had been a major point of contention in the mortgage market, as many mortgage brokers like me make “no cost, no fee” loans based on the ability to earn YSP. Initial discussions revolved around total elimination of YSP deals, and as you can imagine, the unbelievable ensued. Accordingly, negotiations between the various groups (federal regulators, consumer groups, and the mortgage industry) commenced and a compromise was hammered out which has now become law. Now, according to the law "no mortgage originator will receive any compensation which varies based on the terms of the loan other than the size of the principal loan balance." The lone exception, which placates the various factions, is when "the originator doesn’t receive any direct compensation from the consumer." Moreover, "no upfront charges such as discount points, or origination fees may be assessed to the consumer outside of the charges derived from a bona fide third party entity which does not have an affiliation to the creditor or originator whatsoever."

So for now, it appears as if the mortgage broker community can still offer the no-cost, no-fee product, but its members cannot charge any upfront fees or earn compensation from an affiliate.

Time will tell if all of the cures for the crash will help or cause RE to remained stalled for years to come. I am guessing the latter.