H.R. 3915 the "Mortgage Reform and Anti-Predatory Lending Act of 2007"
The one thing that helps keep predatory lending to a minimum is the massive presence of mortgage brokers who act as buffers to keep rates and closing costs from rising. Even BARNY FRANK's own study for the Government Accountability Office recently handed to the nation backs up this finding by indicating the top level lenders and aggressive investors hold the most responsibility in the market implosion. http://www.gao.gov/htext/d0878r.html
"American home buyers and owners are about to be dealt a severe blow if you do not act. The U.S. House of Representatives is considering a bill that will fundamentally change the way we are paid, outlaw YSP, and legislate underwriting guidelines into law. Additionally, we fear that all non-conforming lending will cease to exist due to excessive lender liability. This will mean a monopoly by the banks and direct lenders and eliminate the aggressive competition created by mortgage brokers. We are asking you to learn about this threat and then contact your congressman." - National Association of Mortgage Brokers Action eMail Today's Date
ONLY MORTGAGE BROKERS ARE REQUIRED BY FEDERAL LAW TO DISCLOSE THEIR FULL COMPENSATION. BANKERS AND LENDERS DO NOT SAVE ANY MONEY TO BORROWERS AND HIDE THEIR COMPENSATION. THIS BILL WOULD SEVERELY CRIPPLE YOUR CHOICE TO BUY INVESTMENT PROPERTIES OR HOMES IF IT PASSED.
TIME IS CRITICAL. The bill became public last week. The U.S. House of Representatives Financial Services Committee will vote next week. Important warning: The vote is now scheduled for Tuesday, November 6. Please contact your representative before next Tuesday.
According to an intensive study by Georgetown University professor Dr. Gregory Elliehausen of over 500,000 mortgages - pricing by MORTGAGE BROKERS was less than pricing by DIRECT LENDERS. "The study found the APR (annual percentage rate) on broker-originated first mortgages were 1.13 percentage points less than loans originated by lenders, and 1.98 percentage points lower on second mortgages."
THIS IS ANOTHER BLATANT EXAMPLE OF AN GROUP OF ELECTED POLITICIANS OR POLITICIANS WITH SOMETHING TO GAIN PERSONALLY USING THEIR POWER TO REGULATE YOUR FREEDOM AND ELIMINATE YOUR BEST CHOICE. It will hurt those who need the help the most.
This is SERIOUS BUSINESS for everyone in the country even if they never purchase a home. It will result in rates and closing costs increasing over time simply due to the total loss of one powerful factor: mortgage brokers clamoring for pennies.
P.S. I'm a direct mortgage lender by the way albeit a small one. If you have to call a big national lender directly and there is no hungry mortgage broker to stand in the way ... watch out!
Ken Cook - Georgia - FHA, USDA, VA and Conventional Home Loans (678) 439-8683
77 Comments on Death Watch for Mortgage Brokers? You Better Read This Even if You Don't Care
OCT
31
2007
In California, buyers typically don't find out about YSP until closing, when it's too late, in most cases, to object. YSP means the buyer paid more than necessary, and I don't see how that can be in the consumer's best interest. I realize my view is not popular with mortgage brokers, though. :)
Ken, It kills me that yield spread is seen as a problem. Excessive compensation can be a problem in some areas, but yield spread allows consumers to save money. This is another example of the government trying to do the right thing, but not understanding the full market. The law of unintended consequences kicks in and makes the problem worse.
Elizabeth: ABSOLUTELY incorrect! YSP DOES NOT INCREASE THE INTEREST RATE and that is EXACTLY what the Georgetown study showed. YSP is not an INCREASED RATE ... it is the difference between the WHOLESALE RATE (that the buyer does NOT qualify for) and the RETAIL RATE. This is the exact industry and market ignorance that causes regulations. It doesn't matter if the borrower EVER sees the YSP - the rate is the rate is the rate. Go to the bank go to a lender or go to a broker. The RATE is the same. I bet you don't even know what SRP is do you? And you NEVER WILL SEE IT because it's the YSP for a LENDER or BANKER. Argh - PEOPLE, especially you professionals who BENEFIT from the 60% of loans which were originated by BROKERS before you speak, know the facts.
Ken, I just don't get where they come up with this crap. I'd sure hate to see this pass in it's present form. I guess big gov wants to eliminate mortgage brokers AND real estate agents. They must be smoking some good shit up there on Capital Hill.
We have the Government not understanding that their actions would have a negative affect on the people. YSP is not a bad thing. It can be very good for many people. I use it as a way to education my clients about mortgages. I do not hide from it.
If this is outlawed, then many banks will get more money because they will not be able to pay brokers.
If they change this we will also see more lender go out of business as well. We already have many lenders shutting their doors. Wow bad news.
See, I knew I would send you into overdrive, Ken. SRP is a service release premium paid to banks in the secondary market. YSP is a fee paid to mortgage brokers for bringing in borrowers who agree to pay PAR. Real estate agents don't receive compensation that isn't disclosed upfront. But then upfront mortgage brokers disclose. I take it you're not one of those. I'm not a fan of YSP and never will be.
Peter - when I was a broker I limited the amount of YSP to 1%, required it to be discussed with the borrower, and explained how we could charge the same rate the lenders and banks were charging and make this 1% or we can charge more front end fees OR we can bump the rate another half or so and take all the broker front fees away.
Bryant - it's because they "think" they MUST do something. Every time they do they frazz it up for everyone they were trying to help.
Dave - Yes! The government not understanding and people not caring. They only care after the law passes and it affects them. Just wait until Elizabeth up there has a deal fall through because there is no one to fund it!
Elizabeth - please read this blog from a couple of weeks ago.
Elizabeth - I am not a broker. But many of my friends are. However, your understanding and definition of YSP is 100% incorrect and YES I AM SERIOUS ABOUT THIS. So, yes I'm in "overdrive". You are damned right I am. So you think the borrower agrees to pay WHOLESALE? Call the bank then call a broker. You'll get the same rate quote. Do you demand to pay the grocer's cost for a can of peas? The gas station's cost for a gallon of gas? The Maybeline counter's cost for a tube of lipstick?
Um-when did it become illegal for legitimate companies to make a freaking profit? I am flabbergasted that the damn politicians, once more, think they are better qualified to run the economy than consumers. YSP is so widely misunderstood mainly because the ones who talk the loudest about it are the ones who understand it the least. BB is right-they've saved the good stuff for themselves in DC.
You keep on hollering Ken. Folks need to get off their dead asses and contact the folks who vote on this ridiculous legislation. We have no one to blame but ourselves if we do no more than chat about it on blogsites!
Do you have a link to a place where we can contact the decision makers? We have got to keep these banks in ine. They won't stop trying to get into real estate, and trying to control everything.
I know a lot of mortgage brokers disagree with NAMB (National Association of Mortgage Brokers), but this is the very reason they exist - to voice "our" opinions and "fight" for what's right and equal across lending channels.
AND... this is the very reason MORE mortgage brokers need to join their state and national associations. There is power and influence in numbers.
If this is passed, it could possibly change the face of real estate (and not for the better). To all Active Rainers, this information needs to be passed along!!!
This is why I got into Commercial lending. No RESPA rules. No whinning and lying consumers. No clients wanting to live the Dom Periogne lifestyle on Pabst Blue Ribbon budget. No realtors convincing them to buy a home for $50k above what they're qualified for. No more A paper clients arguing with me over an 1/8 of point or why they have to pay the intangibles Tax.
Elizabeth, To make this real simple. When going wholesale the lender is allowed to discount rates to the broker because the cost is much less for them. Now please follow before you object. If you would take the posted rates at the Majority of the Retail Banks on the wholesale side the same rate would pay on average 2 point or 2%. Now if the loan is $300,000 and the purchase price was $400,000 I do believe first off you would get paid on the FULL amount of the $400,000 while Mortgage Brokers would be based on the $300,000. Also now that we know realistically what they are earning on both sides what would the commission be for you?
I know I might be breaking this down to much. Just keep in mind on average the posted rates usually on the wholesale side means it pays the brokers 2% and we have to at least show it to the consumer while the banks keep it a secret.
Ken, I just wanted to let you know that I agree with your post. Thank you.
Leigh - You're absolutely right. Nobody is allowed to make a profit anymore. It's viewed as a crime these days.
Bryant - The government has been after Realtors and our "business model" for years now.
No matter how you feel about YSP or SRP, the fact is this: If they are successful in taking down mortgage brokers and the system by which they are compensated, we (Realtors) will lose in our fight against the justice department and all brokers, mortgage and real estate alike, will lose their way of business.
We just had a big state disclosure law passed here in Florida this year. It requires the yield spread to be disclosed on the closing documents along with many other new things.
We have something very similar to that here in Texas as well, Rob. The HUD (closing statement) is suppose to be available for approval to the seller, buyer, AND REALTOR 24 hours prior to closing for all to see exactly what is being paid to whom.
Steve D. I know what you are talking about on SOME AGENTS, but as a REALTOR I sell my clients homes in the price range that my CLIENTS want to look at. I refuse to be a Realtor that pushes someone in to something over and above their means. If they get approved for $200k but tell me that they are only comfortable with $160k, THAT IS WHAT WE LOOK FOR! I want to be someone Realtor for life and putting them in a situation that a year or two down the road they wind up losing their home, WHO do you think they are going to blame? I don't want to go there. I'm a Realtor NOT a used car salesman. I take my Code of Ethics VERY seriously.
Ken - Absolutely fantastic post!!! These attempts at monopolizing the Industry are never good news....for any Industry or the public that utilizes their services. Competition is what drives this country and is what helps bring about fair and affordable economic conditions for all of us. I hate to reiterate, but fantastic job Ken......just freaking fantastic! Thank you, from one of those Mortgage Broker guys:-)
Leigh, Thank you for actually being a real estate agent with a brain! I hope you and I get to do business together one day... I would consider it an honor!
NOT THAT I DISAGREE WITH THIS POST IN ITS MESSAGE AT ALL!
But maybe I missed it somewhere.. I just scanned through the H.R. 3915 bill and did not see anything in regards to no YSP allowed. I will admit, its been a long day, and I am tired, so I may not be reading this correctly, but this all actually sounds as it should. Of course, I am in NC, so we already have many of these predatory laws in effect...
Where is the part in this bill that prohibits ysp?
Ken, thanks for a great post. With the Donkey party in control, there are all sorts of "protective" laws being considered which are actually a boon to their big contributors... and people thought that was what the Elephant party was all about. Along with the unintended consequences, there are the intended consequences. I think there are a good number of lawmakers that know full well what they are doing... but it makes for good sound-bites, so they don't care.
Elizabeth, I hope you counsel your buyers to shop around. And, it they shop around for the best loan product for them, does it matter if they pay 1.2% or 1.8%? It is still the best product and rate for them. it isn't much different that you charging 5.23% for selling their home, and a discount broker charging 4.15%... but getting a lower price. The net is better even with the higher commission.
Retailers are not going to give away all of their margin or they will go broke.
Wow! It is so great to see so many genius people! Thank you ALL for your comments. Please do us all this favor - invite your associates and contacts to read this post and comment. It WILL be read by "people who make a difference".
Leigh - thanks for weighing in!
Lisa - I have a conference call tomorrow with the who's who at NAMB and will post the updates.
Doug - what broker in their right mind would "disagree with NAMB"?
Steve - I did commercial before I did residential. I hear ya man!
Matthew - use smaller words. She's a real estate agent from California. Oh, and a contributor to About.com
Rhonda - "they" are pawns in their own game. Whatever benefits "them" in there next election or after "their" public service is what "they" are after. Case in point former Georgia Governor Roy Barnes. Leaving office he made sure the Georgia "un" fair lending act passed. What does he do for a living? Sues lenders - among other things.
Rob - I have always openly discussed YSP with my borrowers. I always beat anyone else's pricing much to the pain of people like Elizabeth.
Kathy - I hear ya! Some mortgage people are evil but not most. We all have a lower element in our industries.
Jason - Thank you. Thank you! Education not legislation.
Orlando - If I get to be a lender and all mortgage brokers go home, how much richer can I be?
Bob & Carolin - I'll keep you posted!
Todd - their aids do. Search for "house bill to end ysp" on Google and see what is number three.
Ed - The bill, as most, don't just say in plain street talk "end YSP to brokers" but the reference is: "(B) all compensation paid directly or indirectly by a consumer or creditor to a mortgage broker from any source, including a mortgage broker that originates a loan in the name of the broker in a table-funded transaction;" and here is the link to the NAMB article from a week ago.
Thanks for getting the word out. As you know, mortgage brokers are notorious for doing NOTHING when legislation is proposed against them. Then they wake up after it goes through and wonder what happened.
Mortgage Brokers and Realtors, Title Companies, Appraisers and Lenders Let's Unite and kill this bill. The politicians are having a knee jerk reaction amid the mortgage implosion. They think pushing this bill will garner them votes. If this thing goes through, the market may never recover.
Bill - thanks for joining in. So many people think they understand the many intricacies of YOUR business. Your comment here does count. Are you a NAMB member my friend?
Jason - just keep getting the word out. Redundancy is never boring when it is appreciated! Thank you sir!
This may be far too simplistic - I really know little to nothing about the subject - but the perception is that fees are hidden and that's not good for any consumer purchase. Everything should be spelled out up front.
If the fees are legitimate, then there is a way to substantiate them. If not, then the consumer deserves to know.
Deborah - Exactly! And BROKERS are the only ones on the money side who do NOT hide any fees. As a lender I am not required to tell the borrower how much I make (lenders don't really know how much they make until the loan is sold). But brokers are required to disclose every penny. BROKERS do not hide fees, they show them on the HUD1 just like every other fee. YSP is not hidden. Thank you so much for stopping in and commenting on this vital subject. Brokers don't mind showing how much they make, what they are opposed to is being singled out and made to look like the only party profiting from the loan. And disinformation is not helping the situation.
Yes, some brokers and lender take advantage of their clients. But many of us use YSP to lower or do away with our clients closing costs. If I have a client that will not be in their home for 3 years or longer, I will suggest that they increase their interest rate (which is tax deductable) in order to do away with their having to pay closing costs. Normally, if they will not be in their house over 5 years it is in their best interests TO pay their closing costs with YSP rather than having to put that money back into the loan amount or having them come to closing with that amount of cash. I think that would be something that would hurt their clients. Yet, there are many Brokers who take advantage of their clients. I have seen Brokers get 5 to 10 points on 1 transaction. That should not be allowed to happen. I hate to see new laws enacted but I think getting over 3 to 5 points should be outlawed unless it is to pay for the clients closing costs.
Ken... this is interesting because I haven't heard of this bill. I agree with several points. But I am confused. I will need to read the bill. But you said, "The U.S. House of Representatives is considering a bill that will fundamentally change the way we are paid, outlaw YSP, and legislate underwriting guidelines into law."
Ken, when you say outlaw YSP, is this for those that show it on the HUD? Does this mean those that can still make a YSP, but don't have to show it, can still make it? Or will YSP be outlawed across the board? In all honesty, I don't see how they can possibly stop brokers from making YSP because it's disclosed and that bankers will still be able to do this because clients won't know. That would be an open door for any lawyer to sue based on discrimination. In all honesty, I can't see this law standing on it's own and getting passed just based on what I just said.
In regards to fees that are hidden.... YSP is not really a fee. Compare the rate. Compare the rate and the whole good faith. In all honesty, yes....using that term again, if my good faith is cheaper than a brokers, who cares what my YSP is. We know it's in the rate. I understand the argument, but it still doesn't keep people from shopping correctly. It comes down to the integrity of the loan officer and if they bait and switch, which could be a broker or a banker.
Dick - thank you for your comments. "I think getting over 3 to 5 points should be outlawed" I agree in almost every circumstance but, Dick, limiting YSP doesn't stop non-regulated banks from getting 10 or 15 points on SRP. Limit one, limit all. I hear and understand what you are saying but when I hear the stories from a couple of my employees who worked for other lenders brag about getting paid 8 points on a loan when they worked for those lenders and there was nothing anyone could do about it because it was buried in the undisclosed SRP it makes me very disgusted. I have the answer but CNN or FOX are afraid to have me on.
Dick makes a good point. And I wanted to add to that. Many of the bigger bankers that I ever worked for capped you on what you could make also. Something that so many fail to talk about. Not sure which ones still follow this, but it would be nice to hear from the top 10 bankers out there, aka.... Countrywide, B of A, Wells, WAMU, etc etc
Jeff - BINGO! "Compare the rate and the whole good faith." Of course you, like I, have seen GFE's not worth the ink it took to print them. The quote you did in italics is from the NAMB press release I quoted. I know I'm not the only lender who feels this way but no brokers - more work, more expense, fewer loans. Education not legislation.
Ken.... you are correct in regards to your last sentence.... I know I'm not the only lender who feels this way but no brokers - more work, more expense, fewer loans. Education not legislation.
But I am still looking for clarification on banning the YSP for ? Just brokers because it's disclosed? For everyone including bankers? As I mentioned, if it's the first one, I don't see it holding up in a court of law, which would happen in a heart beat. Just my opinion...
Great post! It is truly all about politics. The banks have more power because of their heavy pockets and they think that they can move mountains. I can never understand why banks are exempt from disclosing their fees and how much they make whereby it is a requirement for mortgage brokers to disclose them. This is simply unfair and it gives banks an upper hand.
When borrowers go to the broker to get a loan and later find out how much the broker are making, they sometimes "object" and feel as though they are getting ripped off. On the other hand, getting a loan directly from the bank will not disclose the compensation the banks make so the borrowers "think" they are getting a better deal and that the direct lenders are more honest. Go figure!
It is the brokers who are bringing in the business to the banks so it does not make sense why they keep trying to drill down brokers. If they pass this legislation and prevent brokers from getting the ysp, this is bad bad news. To be fair, I don't think mortgage brokers should have to disclose the YSP to borrowers. I've seen on a few situations where the borrowers question this fee when signing loan docs. They think that the brokers tacked on this extra fee or otherwise they would have gotten a lower rate.
I don't like banks because there are too many red tapes and they are not as efficient as some mortgage brokers.
Dave - thank you for commenting! You said "They think that the brokers tacked on this extra fee or otherwise they would have gotten a lower rate." True and almost true (stick with me here). Yes if the broker did not tell them about YSP they would think the broker tacked this on but they are usually clueless about where it comes from so they generally would not know that if the YSP was not a part of the deal the rate would have been below retail and lower than the actual rate for which they qualified. As a broker we always told borrowers about YSP. We also beat the rate of our competitors WITH the YSP in place. I think it's an unfair field but the truth is as a lender I really don't know how much I will make in SRP but I always knew how much I would make in YSP. I agree - brokers should not have to disclose YSP. Whoever came up with that idea did a lot of harm - I bet someone remembers. I do not but will research.
As part of my RESPA doc signing, I always talk breifly about YSP. In NC, we are required to get a Mortgage Loan Origination Agreement signed in which ysp is discussed. I explain it in this way:
"I get paid for what I do. Some of my compensation comes directly from you, as we have already discussed on the Good Faith Estimate. Some of my compensation may come directly from the lender. Since I have a wholesale connection with the lenders I work with, many times I may get paid directly from the lender... this is paid outside of closing, meaning that you are not required to pay me anything more than what we have discussed. Lenders use money to promote their loan products. On the retail side, they spend millions of dollars hoping to get a loan from it. But on the wholesale side, they can use this "advertising" budget to directly compensate a loan coming in since as a broker we are effective creating the advertising for them. So while this may over-simplify things a bit, you could look at any money the lender pays me as part of their marketing and advertising budget. This allows me to keep my fees lower while still offering you a great rate and excellent service. Does that make sense?"
.... at least something like that.
Now at the time of signing, I may nor may not have locked that rate in yet, so I do not know at this point exactly what the amount of ysp is. And if they are happy with the rate, as someone that has wholesale connections, I may shop several lenders to see if there is a better ysp offering on that same rate, provided of course that I can still close in a timely manner without additional hassles.
Think of it like this... A builder gets a contract to build a home for a price that both the builder and the buyer are happy with. Once the construction is set to begin, don't you think that builder, with all his wholesale connections, would shop different lumber yards for the best price on lumber? Would he not shop the different suppliers for the best wholesale price? So why at closing is this builder not raked over the coals for the amount of money he makes, which is FULLY DISCLOSED on the HUD1 as the cash due to seller? The house is delivered as promised at the price everyone was happy with up front. No need to get mad if he made a profit!
I have never once had any borrower get offended by this. The only time ysp has ever been an issue on a deal at closing is when the real estate agent has to open their big mouth and start asking questions about it. If you are at the closing table and your buyer is HAPPY and about to send you several referrals, why in the world would you open your mouth and create an environment of distrust? Did I not provide a good service at a price your buyer was HAPPY with? Will you not get more referrals because of how I handled your client? Stop tripping up over the few extra dollars I may make on a deal (that is FULLY DISCLOSED!) and lets send our mutual client to their new home HAPPY!
Now, what do you do without YSP: Lenders receiving loans from brokers build in a higher percentage of compensation for their brokers based on loan amount and/or charge an origination fee on the brokers' behalf.
End Result: Population trusts brokers more because they aren't worried about YSP. Brokers lose the stigma attached to them. Everyone is happy.
Ed - great comment "book"! Seriously, thanks for taking so much time to leave such a great response. I like the builder scenario and have used it. I also use gasoline and a can of peas.
Alex - good thought but if I understand what you are saying it will not work that way. We call it YSP right now but the bill in front of the house says "any incentive compensation". People who don't know what the hell they are talking about need to pay the price and lose their "trusted" status. The bottom line is the bottom line and the bottom line says most, the vast majority of brokers are fair in their use of YSP and their closing costs and rates compare to those at the bank or any other type of lender.
Jeff Belonger - Section 103(b)(1) IN GENERAL- No mortgage originator may receive from any person, and no person may pay to any mortgage originator, directly or indirectly, any incentive compensation (including yield spread premium) that is based on, or varies with, the terms of any residential mortgage loan.
Phaedra - yes, please do. This is important to real estate agents, Realtors and home owners alike! Have I mentioned we are licensed in Florida? I especially like the Tampa area.
Excellent post Ken!!!! Education not legislaton. IDEAL! If only the mortgage industry on all sides established that and stuck to it. Sadly thats not the case. My 1st originating job some 15 years ago was with the largest bank in the US. When I arrived for my 1st day, I was given blank business cards, an outline for a rate sheet, and was told to hit the street! No orientation, no training, no nothing. Oh, yeah. My 1st draw had a deduction for my business cards. Ops, got side tracked. Our congressman happen to be a childhood friend of mine. You can bet I'll be talking to him this weekend. As for YSP, truely good brokers explain pricing and how they make money. We have never had a problem explaining it and it is never an issue at the settlement table. I would truely like to see banks and direct lenders be held to the same rules. It would be alot of fun to watch. Moneys and footballs come to mind. As for SRP which was mentioned earlier, thats really nobodys business. Resale in the secondary market for gain is an investors perogative. Thank you, from another one of those Mortgage Broker guys:-)
Kathy - I'm glad there are realtors out there that do what you do. You represent the majority.
There has always been this antagonism between realtors and mortgage brokers. Why? It's about controlling the deal. My philosophy has always been the guy with money controls the deal. But maybe I'm biased because I'm a mortgage broker. But this antagonism needs to stop. Both industries are under attack because we are easy targets. Ben Franklin said, "If we don't start working together, we'll all certain to be hanged together."
Elizabeth... you're just wrong. And I'm sorry for your clients... that is why most states mandate that Realtors do not comment on rates because your comments just show a lack of understanding how the lending industry works.
YSP is not any more negotiable than your commissions.
They are irrelevant to the conversation of predatory lending. This bill is basically attacking Brokers and protecting banks from their own improper dealings.
Mortgage Brokers disclose ALL fees up front... We disclose Seller paid fees even! Banks do not.
I was competing with Wachovia's internet team a few weeks back... the guy said that closing costs would be $1200 + any state fees but could not estimate state fees... then he caved in and said that title would also come in and he didn't know who would be charging on that... plus a bunch of other fees... and he would not disclose APR!!
I gave a full GFE and TIL to my client!!
That is what should be required - the banks to show why their rates are higher than Brokers and why their APRs are so much higher when they lower rates.
9/10 problems you'll see at the closing table are banks that are not disclosing fees until closing and then the buyer has no choice
the buyer/borrower should have NO issue with a commission that lies to the left of the debit/credit column for them as it does not affect the bottom line or payment.
Our pricing is PAR Plus... PAR is far lower than what a bank will ever charge!! It is the lowest rate the banks investors will accept... then points come into play to pay the broker for originating.
From Elizabeth Weintraub, Your Guide to Home Buying / Selling.
Definition: Extra money paid by a mortgage lender to a mortgage broker as a bonus often represented as a percentage of the original loan balance. Typically, if a lender is paying the broker a premium bonus, it's because the broker left "money on the table" in the deal. This money the lender is paying the broker, well, it could have gone to the borrower in the form of an interest rate reduction or fee reduction or both. Instead, it goes into the mortgage broker's pocket!
Examples: Mortgage lenders often pay up to 2% as a yield spread premium to mortgage brokers, so borrowers should ask about the YSP way before closing in order to renegotiate.
Extra Money? the 3% you are getting paid to transact a real estate sale is extra money?
1) SRP is for LENDERS not Brokers
2) This isn't about leaving money on the table. Our pricing pays us. The pricing that has YSP = 0% is called PAR. It is does not pay Mortgage Brokers a dime. We offer a PAR PLUS rate so we get paid our commissions. The YSP = +.5% means we get 1/2% of the LOAN amount, not purchase price.
We have a right to get paid. Florida law says we must disclose YSP 3 days prior to closing. Rate can be a negotiating point but YSP, the way we get paid, is not.
If I offer a 6.5% and you want a 6%, am I doing less work? Is the work I am doing less valuable?
and why would you go with the person that is willing to make less? are they offering the same lender, program etc? or just luring you in to hang you to dry later?
Great post. You've just coined a key phrase that I believe could be essential in moving forward: "education, not legislation". I'm glad to see that you are as fired up as I am about the impending bill. I don't necessarily think that the bill will be passed but it further suggests that a majority of the blame for our current market is being placed on mortgage brokers.
Now I'm not condoning LO's or Brokers that place their own personal interests before their customers - they should be and are being flushed out as we speak. But there were and are other factors that have assisted in bringing us to where we are today.
Mortgage companies, Realtors, appraisers, etc.. all need to come to terms with this and be supportive of each others respective field to be succesful as an Industry as a whole.
Outlawing YSP would do far more harm than good, it's an option for consumers to finance their closing costs...The blind, deaf, dumb politicians acting like they have business sense or some semblance of knowledge about the mortgage industry...ridiculously ignorant.
Spot on about greasy handed politicians making a play to help out their banker buddies...
Scott - you can review my blogs here and anywhere else and there are a few things that keep coming through: Education Not Legislation is number one, Licensing for ALL loan originators (loan officers to you Elizabeth), transparency in ALL facets of lending. Listen, I never know how much SRP I can get until I have sold the loan but I would be more than willing to show those numbers to anyone with the right and concern to see them after the fact. I run a business and the last time I checked Elizabeth and her crew earn vastly more per closed deal than I earn on my deals. Notice I used the term earn? I bet she'll want to talk about all the education she's required to have (so am I), the tools she has to subscribe to (okay, yes let us compare those costs). And, has any real estate agent ever had to buy back a home because the borrower, other agent or appraiser committed fraud? Argh, I'm getting started again ... let me move along.
Steve - you are right. There is a very small but hideously arrogant section of both the lending industry and the real estate industry that think the other side is useless and undeserving of their compensation. It will never stop as long as there are people who have a platform for their voice but their head in the clouds.
David - how does that cinch your respect for "About.com Experts"? By the way, I tell my clients not to just shop around but to double submit. DEMAND the HUD1 before closing and go with the clear winner. Gosh, Dave, you know I'm one of the top performing in my state? Must be because I'm so much more expensive than the big guys, eh?
Zach - most of us are together on this. Elizabeth is one of the very few who have created their own unrealistic and highly inaccurate definition of YSP. Think she argues with the cashier about the markup on a can of peas not being disclosed? That very select few are easily seen through by industry insiders and clients as well. Notice the other comments from real estate agents? Elizabeth is pretty much all alone in her misgivings.
Jeff C - good to see you commenting on my post. If I remember right you and I had a litle go 'round about YSP a year or so ago. You were going to call me and 'splain me some things. I must have missed the call! Seriously, thanks for commenting.
I hear a lot of complaints from realtors about how much brokers/lenders make. If a realtor takes a client to see 1 house and the client loves it, does the realtor discount their fee? NO!!
A lender discounts their fees on 'easy' loans that dont take a lot of time. Those 'hard' loans are the ones with the most ysp/srp. And the lender deserves that compensation. I will also dare to say that the realtor made more money than the lender..... and THAT is okay, why?!!?!?!?
Funny.... that some people thisnk there is a difference between ysp and srp. There really isn't.
Elizabeth's comments above prove that 'most' realtors don't know their own industry enough to talk about it intelligently with their clients.
Tom - I feel your fire! However, I would say that most of the agents I know personally and have worked with are highly knowledgeable and skilled in their industry. I have had only a few over the years who have crossed the line and tried to act as some kind of loan negotiator. A very dear lifelong friend of mine who has been a real estate broker for over 30 years once told me the reason new agents get involved in the financial process is because a lot of the training and paperwork leads them to believe they have a responsibility to their client to do so. The reason, she continued, experienced agents get involved in the financial process is because they never advanced beyond the rookie level. Elizabeth's comments and her article on About.com proves that Elizabeth is incorrect in her "belief" and misleading her readers about something Elizabeth has no business writing on. I have gone to bat many many times to help agents justify their 6 or 7 percent commissions and I've dropped my commission an equal percentage to the dropped commission of the agents involved to make a deal work. Real estate agents are my friends. Thank you Tom for your comments.
Personally, I feel that this is much ado about nothing. They are not outlawing YSP, but rather they are making brokers disclose it upfront. This will actually help the industry and should eliminate a lot of the bait and switch people who quote a low rate to get someone's business and then call the client the day before closing and tell them their rate will be much higher than they were originally quoted (this is usually done so the broker can make a bunch of YSP on the loan and the borrower feels stuck and often times goes along with it).
Additionally, they are trying to make brokers more responsible. I believe the bill calls for brokers to be licensed and bonded....two things that will help to eliminate all of the used car salesmen and fly by night people who are just trying to make a quick buck. Additionally, the bill calls for brokers to make loans to people who show a reasonable ability to be able to repay the loan. What a novel concept, making loans to people who actually qualify for them and can actually repay them!
I wish it had not gotten to this point where the government had to step in and do something but I really think this bill will help the honest brokers and eliminate all of the sleazy brokers that basically ruined this industry over the past 5 years. Not that it matters because I am sure this bill will never pass as it is currently structured.
Jason - welcome! Right it's much ado about nothing. Bankers especially have been gunning for your job to be eliminated for many years. This is not about licensing BROKERS (who are already licensed in every state except Alaska until next year when Alaska requires licensing) it's about licensing LOAN OFFICERS but only the ones who work for BROKERS (not the ones who work for national banks who would be exempted). Further, studies have proven that lenders and banks are not always automatically cheaper and in fact on subprime loans over 60% paid more at a bank or lender. Lastly, read the bill - it specifically names outlawing YSP or any other compensation to the originator based on the, here - I'll post it again ... "Section 103(b)(1) IN GENERAL- No mortgage originator may receive from any person, and no person may pay to any mortgage originator, directly or indirectly, any incentive compensation (including yield spread premium) that is based on, or varies with, the terms of any residential mortgage loan." That, Jason, is your paycheck. Thank you for your comment!
"Additionally, they are trying to make brokers more responsible. I believe the bill calls for brokers to be licensed and bonded....two things that will help to eliminate all of the used car salesmen and fly by night people who are just trying to make a quick buck. Additionally, the bill calls for brokers to make loans to people who show a reasonable ability to be able to repay the loan. What a novel concept, making loans to people who actually qualify for them and can actually repay them! "
Not a slam on you Jason by any means at all, so please don't take it that way... but people tend to forget that most loans are underwritten by the lender, not the broker. Some brokers may be able to underwrite their own loans, but that is watched closely and if there are issues, that privledge is taken away.
So the idea that brokers need to make sure the borrower can afford it is a bit of a joke. We originate loans according to the underwriter's guidelines as created by the lender. They should be the ones that need to be addressed on this... but of course, the mortgage broker takes the blame yet again.
Just had to vent on this one.. the concept is getting too wide spread. Everyone wants to blame us for what we did not create.
What a great Post!! Sadly I was late. I am shocked at the Lack of Knowledge that some have about our Industry. Elizabeth is Indeed 110% wrong, and sadly she wouldn't like someone misrepresenting her end of the Business. I know that when I sit down at a closing, and the Realtor is Making $15,000 and I am making $5,000 What business is it of the Realtors to Question any part of our Pay.
Like I said this was a great Post!! also my uncle lives in Marietta.. Good Job Here!
Tom - thanks for joining and you're not late, we just started yesterday. Elizabeth was the only one with a comment like that. I don't lump her with all agents. Most agents I know are well informed and competent at explaining YSP as it really is. There seems to be a very small sector of very vocal people who have their own definition of YSP.
I understand Completely! What would give her the right to Agree or Disagree with how we get Paid. I would assume that she sleeps well at night knowing she is making a ton of money off many Buyers and Sellers, and yet she is Concerned with how we make a living.
She doesn't sound very Bright, Complete lack of Knowledge, and she is doing her Clients and huge Injustice by continuing as a Realtor.
Great post. I am about to send another email to my list about this bill. This "bash the broker" nonsense has been going on for years, and for just as long as I have been hoping up and down up my soapbox waving my hands in the air urging independent brokers to get involved.
I apologize to anyone I may offend for writing this, but the truth hurts. Big lenders, big money, or uninformed legislators are not to blame for the "bash the broker" bruhaha - brokers are. The group that is "perceived" as the weakest will always be picked on -- this, unfortunately, is the law of the jungle.
Some brokers feel that just because banks have deep pockets, they don't stand a chance. The great thing about our system is that money is one way to influence the system, but getting involved and making some noise is just as powerful.
Here are 3 simple things brokers can do. - join their professional associations and get involved in the REGULATORY committe, - make sure their legislators (both state and federal) know them. (It is surprisingly easy to develop relationships with legislators - stop by their office, give them a call, send them a note, remind them that you are a small business owner and employer, host a voter registration drive), - and stay abreast of state and federal legislation.
I hope this bill gets sent back for review. Once that happens, I hope this serves as a wake up call for all of us (myself included) who benefit from the existence of independent mortgage brokers to get and stay involved.
Ken...just a suggestion. I'm sure there are many whowould like to contact their representatives but who may feel intimidated about what to say and how to say it.
I am active on my State Public Policy committee and when we have an issue we have a "call to action" Our legal eagles write a statement that we can edit or use in total, as we prefer....it really encourages participation! Perhaps you could post an editable statement?
It is a piece of cake. It is an online form where you put in your zip code and it takes you to your representative. Put your name email and a short message. How hard is that? I do like the idea of a pre-written statement for those who just want to cut and paste.
For years the banks have tried to get into real estate brokerage at a nation level avoiding the state laws and have not been able to get that bill passed. Now they are trying to eliminate mortgage brokerage. On one hand they say that the increase in competition is good and on the other they are trying to restrict competition. It's all about the banks making more money.
Thank you for comparing YSP to gas station buying gas. I think many people are unaware of what YSP is and why it matters to them at all.
Many people have the same thought about gas stations (that owners make too much) - often they make less than 1-2 cents per dollar as profit......crazy eh? Same thing with mortgage brokers and I appreciate mortgage brokers alot, most work extremely hard and deal with brain damage over and over to receive their pay.
It's regrettable that it has come to this where the banks are able to influence Washington in this very important matter. Looks like the consumer would be hurt the most by the law if it passed. That university study ought wake everybody up and fight back.
Chip - the pre-written statement at the petition should serve just fine.
James - yes it is all about banks getting power back.
Ryan - haha, I understand you loud and clear!
Esko - unfortunately everybody doesn't care. They just want to be on the bandwagon that mortgage brokers are loan sharks when nothing could be further from the truth!
Someone asked for a letter. Here is the email I sent to my US Representative:
Dr. Gingrey, I am concerned about many portions of HR 3915, please vote no. While I am, and always have been, a great proponent of licensing for loan officers but this bill, in the current form, is not the answer. I realize that the banker's lobby is large, vocal and powerful but allowing bankers to be exempted from laws that handcuff the thousands of very honest mortgage brokers is detrimental to the populace of our Great State and Nation. As you know brokers are the only entities required by federal law to fully disclose their compensation. You may also be aware of the Georgetown University study of over 500,000 mortgages demonstrating that origination fees and interest rates on over 60% of studied loans were lower when acquired through a broker than going directly to a lender. PLEASE VOTE NO on HR3915 Sincerely, Ken
In addition to (or in place of) a letter, sending a case study to your legislator may help. I think we all agree these folks know nothing about the mortgage industry, so maybe a story in plain English will help them see the light.
Here's an example. Borrower contacted an independent broker 18 months ago. Broker put together a package with GFE, etc. Borrower was contacted by a major lender (broker thinks, as a result of the credit agency selling applicant information) with a deal where she would have a slightly lower payment. Due to the lower payment and the fact that this was a major "brand name" lender, borrower decided to do business with lender.
Fast forward 18 months. Uh oh. Borrower realizes that the "deal" they received from lender was an interest only loan with NO escrow, while the broker had quoted her a 30-year fixed including escrow. Borrower, thankfully, has maintained mortgage payments, but is in danger of losing the house for UNPAID TAXES.
Broker is able to refinance borrower into a 30-year fixed INCLUDING escrow payments for less than what they were paying to the lender. Borrower is in a much more stable position, and is less likely to lose her home to foreclosure or unpaid taxes. If HR 3915 was in effect, borrower's home would have been SOLD on the courthouse steps.
JC - perfect story. One all too familiar. Can't tell you how many times we've had a borrower courted by a major brand name only to call us hours before or from the closing and say, "You were RIGHT! Please help us!" People like talking about how evil mortgage brokers are while the major national names are dragging them through the fire. Can you get a good deal at a major bank? Sure! I did - through a BROKER!!!
Do customers really beleive they are getting a "NO FEE" loan. Do they really beleive that people work for free? If their are any Realtors out their that will work for free...please let me know ASAP. Thanks
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In California, buyers typically don't find out about YSP until closing, when it's too late, in most cases, to object. YSP means the buyer paid more than necessary, and I don't see how that can be in the consumer's best interest. I realize my view is not popular with mortgage brokers, though. :)