Thank you for the education. This proposed legislations seems to be arriving a little too late for many of the homeowners that have been had by the dishonest mortgage brokers. It will possibly help going forward but it sounds like they are closing the barn door after all the animals are out!

Great post!  I love the last couple of lines because they are so true, "Legislation can't always protect you." & "Experience is Priceless!"

I think a big thing consumers should do is to ask questions until they fully understand what they are getting into.  Don't pretend like you know what someone is talking about because you don't want to feel dumb.  If you are talking to a professional they will take the time to throughly answer all of your questions.

So Lisa how is wrong for mortgage people to be paid yield spread from a lender and not wrong when a buyers agent being paid a premium for showing and pushing a home were the seller is paying a premium to the agent who brings a qualified buyer. 99% of all "sales' jobs get paid on commission and the higher the price, the more commission people make, it is a free market economy. To clear things up, we generally tell our clients how we get paid so that they are aware but to label mortgage people as a whole as being "Crafty" or "Playing dumb" or the other derogatory explanation that you imply is basically saying that the mortgage industry as a whole is not trustworthy which is an extremely slanderous statement.

How is it that Mortgage people are "wrong" for being paid a yield spread while many agents will show a home that is paying a higher split to the buyers agent to entice more showings. Maybe you should be responsible for informing the buyer that "Mr. & Mrs. Doe this is a wonderful house and if you buy it, the sellers are going to pay me an additional $5,000.00 bonus in addition to the normal split".

I don't have any problem with keeping the public informed on how mortgage people get paid, because we get asked quite often and I freely tell our clients on how we can be paid on the front and the back and many times both ways. I then let the client decide how they want to proceed.

Sean Allen
The Mortgage Professionals

I would applaud legislation that would help protect consumers. I have been a mortgage lender for over 22  years and I can't believe how many consumers have been charged a higher rate just to make more money.

One way for a consumer to make sure that they are protected is to ask for referreals from a Real Estate Professional or from satisfied clients.  The Real Estate Professionals know who is honest and will treat their clients fairly. People who shop for a home loan from sources that are not recommended to them open themselves up to be cheated.

Lisa:

This legislation targets mortgage brokers only.  It leaves the banks and the lenders to keep the Y.S.P. they charge.

Those realtors who advocate eliminating Y.S.P., may find you are next.  The next stop is the top of page #2 of the H.U.D. settlement statement.

Y.S.P. is a way for mortgage brokers to get paid for their services without increasing the borrower's closing costs.

There is already legislation on the books which limits Y.S.P. and limits fees and every mortgage broker and every lender they sell to strictly abides by these guidelines.  These are Federal Guidelines.

How would realtors feel if they woke up to legislation that limited their commissions to lets say 3% inclusive of the listing agent and buyer's agent's commissions?  Then, lets say every so often, there is an outcry to cut it back again and again and again. 

WAKE UP!

Most Loan Officers would take this post and get upset about it, not me.  I completely agree (with most of your post), it is up to the Loan Officer to explain all of the options that the borrower has when it comes to fees and YSP.  One thing that I would add to this is that brokers are required to disclose both on the Good Faith Esitmate and of course they are also showing the YSP on the HUD Settlement Statement.  For the cash strapped borrower, charging YSP is a great tool, not only does it eliminate having to charge an origination fee in some cases or cutting the origination, but it also helps when the borrower needs it and the broker can credit some of it back to help cover some of the closing costs.  It is the responsibility of the Loan Officer to explain the fees, including the YSP to the borrower prior to sitting down at the closing table, if they do not, I as a broker make a final call to explain the fees and YSP so that there is no confusion or questions at closing.  Educatating the borrower is not only the responsibility of the borrower but also the broker/loan officer. 

If YSP is in fact eliminated, there will be more upfront closing costs for the borrower, whether it is closed by a broker or banker.  YSP is a good tool so long that it is explained and used properly. 

Lisa,

We are working on a commission basis, just like agents. We can charge an origination fee up front or do a YSP on the rate. So long as it's explained to the borrower, he can then choose which way suits him best. Nothing fancy here.

Beware "feel good" legislation. Legislation that makes the lawmakers look all warm and fuzzy to their constituents but accomplishes nothing. Undocumented "liars" loans are one thing, but YSP is a legitimate tool that has been used for years by forthright mortgage brokers (and 99% of them are) often to actually reduce out of pocket costs to home-buyers making the loan more affordable.

YSPs as a financial instrument in and of themselves have never been considered controversial as your post would lead us to believe. What is controversial is how and when brokers and lenders have to disclose their existence and their amount to the borrower. The discount mortgage brokers have to disclose it as a fee but the retail lenders (banks and S&Ls) can build it into the cost of the loan and appear better at first glance because they don't have to explicitly list those fees at all. This puts the mortgage broker at a distinct disadvantage. If mortgage brokers are forced to disclose YSP fees sooner in the process (and I don't think they have a problem with that as the vast majority already do anyway) than institutional banks should too - but you don't see that written into Sen. Dodds proposal.

Follow the money. It's not hard to tell who's actually behind such legislation - the bankers. Yep! The same group trying to take our livelihood away from us REALTORs too! We should be careful what we wish for. "Feel good" legislation could be coming our way next.

Wow!  Who knew when I blogged about this today I would find such ire from some of the brokers on here!  Thanks for the post Lisa!