There is a proposed bill by the Federal Reserve that on the surface sounds like it will help consumers, but will actually cost homeowners and home buyers much more! Additionally it will put Mortgage Brokers, escrow officers, Realtors, title officers, appraisers, loan processors, underwriters and more OUT OF BUSINESS!
Please read carefully!
This proposed bill does many things. A majority of it I agree with such as increased disclosure and transparency to consumers regarding the details of their financing. There is nothing wrong with this and the Government already has measures in place in this regard. There is the new "Good Faith Estimate" as well as National Licensing. However, one thing that it does propose is an elimination of "Yield Spread Premium" (YSP) which is back-end compensation to Brokers for delivering a loan to a wholesale lender. This compensation is not just profit for brokers but is also how homeowners and home buyers are able to have reduced or no cost loans. Brokers are able to offset closing costs by crediting borrowers a portion of these funds at closing. Have you or one of your clients ever gotten a loan and had their closing costs paid by the Broker? Has the Broker ever done a loan charging the borrower ZERO origination or even crediting the borrower the cost of the appraisal at closing?
Without Brokers, borrowers will have less choices in selecting who originates their home loans. The only options they will have will be one of 3-5 big banks. Why will the banks be OK? Well, there is nothing in this proposed bill that eliminates compensation to the banks from the investors who the sell the loans to! Does this make sense? Sounds to me like the banks are using their financial influence to eliminate their competition. Without competition prices will go through the roof. Currently banks and Brokers get compensated in the same way: by charging points or fees to the borrower (out of pocket), by receiving back-end compensation from the sale of the loan or a combination of the two. The main difference is that Brokers have always had to disclose their compensation up front as well as at closing on the final HUD to borrowers, banks DO NOT HAVE AND NEVER HAVE had to disclose this! How I and other Brokers have been able to stay in business over the years is/was to provide exceptional and professional service as well as competitive rates and fees. Ever have an 'out-of-the-box' loan that a bank employee just couldn't understand?
The Government is attempting to impose restrictions and limitations on an industry in the following ways:
1. They want to eliminate steering, in other words they don't want lenders to push borrowers into risky loans in order for the originator to earn more money.
Why this is pointless: Those risky loans that they are trying to eliminate no longer exist! Option ARMs and short-term adjustable loans which paid high premiums are off the market and have been for over 2 years. The lenders that created and marketed these products are no longer in business or have been absorbed by other banks (who have received TARP funds!). The Government is being reactive (not proactive) and are chasing ghosts, ghosts created by the banks and investors that this proposal supports. What the Government SHOULD be doing is enforcing existing regulations that are already in place to protect the consumers.
2. They want Brokers to be compensated by borrowers from their own pockets or by flat-fee agreements with lenders.
What this will do: This will actually encourage steering! Why wouldn't a Broker send a loan to a lender that will pay them more? This defeats the Fed's anti-steering ideas. Furthermore, borrowers with smaller loan amounts will end up not being able to get loans. There has been a cap on total percentage of fees a borrower can pay. With flat fees, this would dramatically increase fees for small-balance borrowers. More importantly, low income borrowers will be priced out of the market due to high costs and high out-of-pocket expenses.
3. They want to eliminate lender compensation to Brokers.
What this will do: This will eliminate 'no cost loans' from the market place. The truth is nothing is free. Loans cost money no matter which way you slice it. "No cost loans" are simply Brokers crediting borrowers some of their lender paid compensation in order to keep out-of-pocket costs down. In order for Brokers to earn any sort of living, borrowers will all have to pay directly out-of-pocket. Think this will affect the housing market?
4. They don't want Brokers to earn compensation based on the terms of the loan.
What this means: This means a Broker cannot earn more money based on either the rate or size of the loan. Why are Brokers singled out? Realtors earn more money on selling a larger house, Escrow & Title Officers earn more on large loans, Appraisers earn more on a larger house, Insurance agents earn more on larger coverage, Car Deals earn more on more expensive cars, Doctors earn more on longer procedures, even Waiters earn more on larger tickets! Where did Capitalism go?
5. Will essentially eliminate Brokers
Just Brokers? No, it will also effect appraisers, Realtors, escrow officers, loan processors, everyone who has anything to do with a loan will be at risk to lose their jobs and careers. Almost all of these people are employed by a small business. The Government wants to HELP small businesses but this proposal will do the exact opposite. Additionally, how many bank employees are willing to work for months helping a borrower get their loan approved? How many will help a borrower clear up a 20 year old lien or Judgment that pops up after many years? Show me bank employee that will assist a homeowner by reviewing their taxes to help point them to a qualified CPA who will make sure their next years filings are in order and properly filed so they can qualify for their first home?
How will this affect you?
Borrowers
1. By eliminating lender compensation to Brokers, all borrower fees are paid up front. This includes title fees, escrow fees, broker commission, appraisals. If the borrower doesn't have enough cash, they will not be able to get a loan.
2. Choices for home loans will be limited to the major banks only. This means your loan will most likely be processed and underwritten in India or wherever else the the lender can save money. Customer service will go down the tubes. Imagine calling for a status update on your loan and getting a different representative every time.
3. Fees and Rates will overall increase. Have you looked at your credit card statements lately? What regulations are in place to stop banks from charging 20% interest on those? Without healthy competition, there is nothing stopping lenders from increasing the cost of the loans. Basic supply & demand.
Realtors
1. You will have a smaller pool of buyers. With higher costs you will have less qualified buyers.
2. Even 45 day escrows will be a thing of the past. With processing and underwriting outsourced to the lowest bidder, how long do you think it would take a processor in Jaipur to review a loan file? Have you ever worked a short-sale that was processed overseas? 90 days? 120 days? How will the seller's agent react when you ask for a 90 day extension to a contract?
3. The housing market will further decline. With less qualified buyers, where do you think home values go?
Sellers
1. Again, there will be less qualified buyers to sell your home to. If it is taking 30-90 days to market a home now, imagine what it would be with less buyers!
2. You will be relying on huge banks to get the loans done for your buyers. Your sale will take longer than expected.
3. Most likely you will need financing for your next home. See above.
WHAT CAN YOU DO?
If you have EVER had a Broker help cover your closing costs, if you have EVER received a "No Cost" loan, if you are a Realtor and have had even one client been helped out by a Broker, if you are a Realtor and have reasons for not suggesting a large bank to your clients, if you are an appraiser, escrow officer or other service provider to the Broker industry then
PLEASE visit the Federal Reserve website and post a comment! Explain why you think this is a bad idea or perhaps post a personal story on how a Broker has helped you buy your home.
Click here: http://www.federalreserve.gov/generalinfo/foia/proposedregs.cfm and scroll down to where it says "Regulation Z - Truth in Lending - Closed-end Mortgages [R-1366]". MAKE SURE ITS "R-1366"as there are a few Regulation Z proposals.
From there you can "Submit comment on ths proposal" or even read other people's comments.
Direct links:
DEADLINE IS DECEMBER 24 SO ACT NOW!
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