MoPros Eat No Mo!!! New Amendment to Reg Z goes into affect April 1st.

Bryant, as someone who has been a mortgage banker and a realtor I understand the difference between the compensation of the two. Realtors set their compensation from the start by written agreement between the seller and the brokerage. As this is made in the form of a contract there are reprecussions for not fulfilling the agreement.

However mortgage/banking agents make money by deciding which rates they can get the buyer to pay while still trying to maximize their own profits. There's the front end - the points - which is what the buyer thinks he is paying and the back end - the YSP. I was an ethical mortgage guy in an industry and company full of opportunists, who were always pushing me to charge more. Needless to say I did not stick around long.

I think transparancy is good when it favors the consumer.

Loreena Yeo and Corrine Guest pretty much said what I was going to said. A loan officer who I met on Active Rain talked to me about this about a month ago. He told me this might force a lot of seasoned loan officers to leave the business. Thanks for sharing this BB. Great post.

Bryant - we will all be in serious trouble if they start regulating our fees as well; as it is you have to fight for every penny with bank owned sales!

It's a very sad day with the new changes to the loan officers compensation.   This will cause more fees to the consumers along with some seasoned loan officers leaving the business.   I've worked as a mortgage professional for over 15 years and have built a great following of clients and Realtors.  I love my job but I got to say in the last three years and with the new changes today, I'm totally worn out!   I know I am speaking for several other loan officers out there.   I think the thing that urks me the most is that BIG banks are trying to get rid of us mortgage bankers.   If that is the case, Realtors and consumers be ready for closing not to take place on time.  The loan files with the big banks will go to la la land and no follow up on status to anyone.   I just have a gut feeling it's headed that way.  I sure hope I am wrong but I have a feeling it is!

Even though I do not fully know the details I do think that mortgage brokers need to be more regulated. I know for a fact that several mortgage brokers that I HAD worked with in the past jammed customers into loans just because they would make more money on that one vs another one that was a way better option for their customer. Heck even when I bought my last house I had SEVERAL of my 'friends' ~ mortgage brokers begging to put me into this greatest new product: the pay option arm ~ telling me all about the great benefits of them, etc etc ~ I said no and got myself a 30 yr fixed low interest and paid appropriate fees only. But I also had many choices since this was in 2006 (land of still lending to anyone) and the fact that I had great credit and income but for others who were less fortunate or less knowledgeable they are getting (excuse my language) screwed big time. Heck, I've even had mortgage brokers change deals midway because 'the customer is becoming difficult and too much time/work' so they need to raise their fees. We don't get that option in real estate. We get the commission which is the commission which is based upon the sales price. No mark ups ~ but I also agree with others who state that real estat is next. We know it. We feel it already from several different directions.

I also agree with Russ' statement (#24) about being a day late and a dollar short on this.  So true. And, I am not for any more legislation/regulation that will serve to consolidate power into the hands of a few national banks.  That is not good for me or the consumer.  Big banks wanted into real estate before this mess and I'm starting to think this was some sort of evil genius plan. 

I enjoy the independence that this profession provides me and I fear that yes, they will weasel into real estate as well or at least have even more of an effect on my compensation.  The heart of real estate to me is the independent broker -- and I do wish that more agents would recognize that.  The fact that any one of us with a broker's license can go out there and start XYZ Realty (and truly compete), makes this business great.  The service at big banks tends to remind me a little too much of the DMV -- what will that do to real estate? 

I have been holding my tongue on FTC MARS trying to be fair and think through the possible benefits before writing a blog post on it.  However, I also don't think it is fair to place even more contingencies into our compensation.  We should be free to arrange it according to what the situation merits.  Some short sales are harder than others -- why should you agree to take the hard ones if you can't charge them anything unless they close?  Already in my market we have short sale specialists turning difficult files down and letting people go into foreclosure -- how does this serve the consumer?  Although I haven't done it -- I don't think there is anything wrong with a real estate broker charging an upfront fee to someone who has 4 liens on their property and I don't like the government saying that it can't be done.

Where are the mandates on the banks and what they need to do on short sales and loan mods?  By all rights they should be out of business -- they ran their businesses into the ground and needed a welfare check to get out of their jam.  Yet, everything is pretty voluntary for them at this point. 

Pretty please doesn't cut it with a corporation last I checked.

Bryant,

 BIG update here. The NAMB, The National Association of Mortgage Brokers, sued to stop this rule from taking effect and they won! Well at least until April 5th when the bodies that be will look into the law to see if it inhibits competition.

It's bad enough that LO's are going to be penalized, but the consumer will be paying more with higher rates and fees and they'll have fewer qualified lenders to chose from.  In the end, we all lose.  Fewer loan choices mean fewer sales and closed escrows for the Realtors that will be making less too.  Russ made some excellent comments (#24) By the way, the Realtors are the next target so hang on to your hats.

Unfortunately, the Consumer, LO's and Realtors are not the only ones who get hurt with this new law.  Larry Bettag wrote an excellent post on some of the other problems built into the Dodd-Frank bill.  If you think this is starting  to sound a bit like a conspiracy theory, you may be right.  This is what happens when the very people that caused the financial crisis are put in charge of making the rules to fix it. 

Be sure to read Larry Bettag's blog on this.  Here's the link. http://actvra.in/7Dp

Most consumers think that they are getting a better "deal" by going directly to a bank [what the banks want them to think]... Truth is that a broker can usually provide better service and value to a homebuyer. Seems to me that the banks are "winning" with this ruling.

Well...I DID like Kevin's (#28) response...and can also appreciate the frustration experienced by professional, ethical, and hard-working loan officers nationwide.

BUT  <--don't you hate that word??

The industry asked for it...and got it.

Five years ago, my son worked for a large mortgage broker here in Southern California. The 23 year old loan officers (who weeks before were working at the T-Mobile kiosk at the mall) were now making in excess of $600,000 a year churning out refis to unsuspecting borrowers. Every four months in the fast-declining interest rate market, they would recontact the borrower and offer yet ANOTHER no cost refi. They'd reduce the rate by .25%, and pick up another 3 points on the back end. Mind you, they COULD have given the borrower a very decent rate on the previous refi, but chose not to. This way worked wayyyyy better! Three more points on a $700,000 loan ($21,000) every four months created a happy income stream for both the loan officer AND the company they worked for. Multiply that by 20 customers...and the income levels were simply too good to pass up.

My son developed idol-worship for these young thugs who were refusing to even take the deal if they weren't gonna make at least fifteen grand. After all, each of them was now driving a Ferrari, and owned at least three Rolex watches. My son admired that. They were just...sooooo successful!

I told him to be careful. These guys he admired were thieves, and ultimately wouldn't last. They'd also eventually wind up back at the T-Mobile kiosk, broke...with their fancy cars repossessed. Fast forward to today. All of it has come true.

But to think THOSE days were somehow better for the consumer is ludicrous. There HAD to be something done to reign in the abuse. Whether this has gone too far or not can be debated forever. But, the industry simply failed to monitor itself. NAMB was content, because all of their members (not just the thugs, but the suit and tie company owners too!) were all making more money than they EVER had before. And even the conservative, hard working pros would go home to their wives and gloat that they made $6,000 on a single deal that day. The practice of "overage" has been going on (and abused) for decades now.

I personally don't care for how "squeezed" the new regulations are in terms of preventing decent incomes for the many upstanding, experienced, and hard-working loan officers who are still somehow weathering this storm. But my message for those loan officers is this. Perhaps your fellow professionals, and your bosses, and your association leaderships should have done something (nay, ANYTHING!!) to curtail the widespread abuse before it came back to bite you all in your you know whats???

It would have preserved the integrity of the industry...and you wouldn't have government watchdogs breathing down your backs. Now...one can only hope that a similar situation will confront the medical industry next. But even then....I'm sure there will be many good doctors who will be forced to leave the profession. That, too, will be a shame.

Dave

Dave,

As in any industry, there are bad apples. 8 years ago, any Joe Schmoe could walk in off of the street and get a job as a loan officer. You were given a phone book, a desk and a phone and told to call the book and find people to refi. This is how I got into the business but I had a Mother who had a mortgage company and due to my upbringing I knew that there was a better way to do business. All of these Joe Schmoes are now out of the business. Some mortgage companies were run like boiler room operations just like stock brokerages. True, all they cared about was the money and not what was best for the borrower. To say that NAMB and the leadership was turning a blind eye to it is ridiculous and ignorant. These bad apples were not a part of NAMB. You are not required to join NAMB to be a Mortgage Broker. The Brokers that belong to NAMB belong because they believe in what they do.

 I am sure the brokers that your son admired were in the minority and it is not fair for you to say that the remaining brokers deserve what they are now getting.

Bob,

This probably isn't the forum for an in-depth debate on the topic. Suffice it to say that I spent 15 years managing HUGE mortgage banking operations, and then over 10 years selling real estate. In 25 years, I witnessed first hand the exact abuses I eluded to in my post above. Not with the "once in a while" rogue loan officer, but with the industry as a whole. Whether it came in the form of YSP rebates, or forcing an appraiser to "just bring the value in or we'll use someone else" (hello HVCC)...or knowing full well that the stated incomes were inflated but used anyway...CERTAINLY wasn't ever restricted to a few bad apples. If that were the case, we probably wouldn't be in the situation we're in today.

Hell, ask ANY loan officer if they ever made 1/2 point overage. The answer will be unanimous. Ask if they ever made over a POINT in overage, and 80% of the hands will raise. Ask if they ever made 3 points overage, and the reponse from the raised hands is "Not overage exactly, but YSP and my borrower still got a good loan."

LOL!

And I completely stand by my comment that NAMB knew exactly what was going on...and did very little about it. Watching their testimonies in front of hearing committees "after the fact" is in a word...laughable, and you know it. The mere idea that they claimed to not realize the gravity of the situation is (to borrow YOUR word) as ignorant as it gets! And you say NAMB believes in what it does?? Try this. Do a search on "National Association of Mortgage Brokers" for ANY period before the last three months. There's virtually nothing found on the entire internet.  The ENTIRE internet!! But you WILL see tons and tons of results from the Mortgage BANKERS Association. I guess they're a little more "active" than their mortgage broker counterparts (I've worked for both, by the way...and saw the same thing in terms of preying on unsuspecting borrowers.)

Anyway, in a world where you can search on "snake flavored Kool-Aid" and come up with more search results than when you type in National Association of Mortgage Brokers" seems rather telling if you ask me. And just so we're clear. I am NOT referring to ANY loan officer who considers themselves to be fair, honest, moral and ethical in their business dealings. Rather, I'm referring to the hundreds of thousands who made a killing, got out, were never regulated, and who sowed what the industry is now reaping. 

"Those bad apples were not a part of NAMB." 

Are you kidding?? They were a part of every loan origination shop out there, whether thrift, mortgage banker, mortgage broker or otherwise.

Dave

As already mentioned, many people did not understand how mortgage brokers were compensated. In the past most agents and consumers were in the dark. For many years I've worked with a very talented mortgage broker, and even though ( back in the day) he had hundreds of lenders he could broker through, he typically only worked with less than ten. Since he usually funded 400 loans a year, he received higher incentives from these lenders. So, on a  400k loan, he would be making 1% directly from the Buyer and another 1-2% from the lending source. To make a deal he often would rebate the monies he received from the lender to the Buyer.  When these buyer would want to refinance, he would charge them no points and just work for the points from the lender.Often he would negotiate that fee down to .5 point to ensure a better rate for the client. One can't legislate morals.

It is crazy sick how the biggies have us by our short n curlies.  I am still trying to wrap by brain around YSP and glad there was a stay on this regulation.

Bryant I have always had a problem with the "secretiveness" of the YSP.  In my opinion, it may not have been such a source of contention had it not been for the following:

1. SOME MoPros attempts to (or actually) get around disclosing what the YSP actually is
2. Hiding it on the HUD-1
3. Much of this could have been avoided had the mortgage industry required MoPros to fully disclose in plain English what a YSP is.  In other words instead of YSP on the HUD-1 and any other document, it should have been clearly noted as compensation or commission to the MoPro and who pays for it.

What a terrible coincidence! Those are the top three lenders that I try to avoid like the plague! Great post. A mortgage lender sat down with me and another Realtor the other day and told us about this. Very interesting. Thanks.

Charita! Really!!

I do not believe that you would work with any MoPro who would hide anything!! Banks and The federal Government require the YSP be disclosed on the HUD-1. MoPros do not try to hide it there. The Title companies put the YSP on the left side of the "ledger" because it is not being paid by the borrower. In NY, the YSP is clearly disclosed on the NY preapplication disclosure that states what the YSP will be.

Charita,

 Maybe you should move to the state of Honesty....... New York.