The Fed Bans Lenders From Paying Bonuses to Brokers For Higher Interest Rate Loans

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Real Estate Agent with Prudential Calfornia Realty

So.....here at the San Diego Real Estate Cafe we almost thought this news was comical.  I mean, REALLY?!  WHY are these issues still at hand?  Haven't we seen what happens when you play with people's money - they walk from their house.  So, if we could stop doing that, it would be good.

What do you think?

Anyways, here is the news on this.

 

The ban takes effect in April.  The Fed said that its consumer tests found that borrowers generally were unaware  of the payments and how they could affect the total cost of a loan.

Critics called the bonuses little more than kickbacks that encouraged mortgage brokers and lenders salespeople to steer borrowers into costlier loans.

Ok, seriously guys...stop being scumbags!  It is so hard to clean up this housing market it is unbelievable.

So the mortgage guys have argued that they can used the payments (referred to as rebates or yield spread premiums) to cover your closing costs that way a homeowner wanting to refinance a mortgage with no upfronts costs might accept a higher interest rate to accomplish that.

I'd just like it if that was crystal clear from the get-go.

Finally, the Fed said that a loan originator "may not receive compensation that is based on the interest rate or other loan terms.  This will prevent loan originators from increaing their own compensation by raising the consumers' loan costs."

Bottom line, too much goes on behind the scenes that affects the general public.  And that "too much" then turns around and hurts our economy, our family, and our friends.  Let's hope that it stops

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Rainmaker
564,273
Steve, Joel & Steve A. Chain
Chain Real Estate Investments & Mortgage, Steve & Joel Chain - Cottonwood, CA

Krista,  I appreciate the intent of the law. I'm interested to see how it plays out.  Do the regulators and legislators expect originators and brokers to provide the same flat rate service for $50,000 loans as they do on $10,000,000 loans?

Hmmm,

Steve

Aug 25, 2010 02:50 AM #1
Rainer
116,760
Joe Harvey
Lake Worth Real Estate - Lake Worth, FL

Krista, this means that people will have to pay closing costs on all mortgages. Having the ability to have no closing costs and a little bit higher rate was a legal and viable option for those that wanted to refinance but didn't have any liquid capital. With the rates as low as they are now, you could get a 5% 30 year fixed with no closing costs. Now with this new law you get a 4.5% 30 year fixed and pay $3000-$8500 to do it...who has that kind of money these days?

Aug 25, 2010 03:03 AM #2
Rainmaker
147,409
Krista Lombardi
Prudential Calfornia Realty - San Diego, CA

Steve, awesome question!!!  That should merit a whole other blog post:)

 

Joe, that's valid.  I see people pay closing costs all the time.  And in CA $8,500 isn't the highest I've seen.  The fact is, certain loans shouldn't be "pushed".  No one likes to accept FHA loans whether good or bad, when you have a loan officer tell your client that they should do FHA and then that loan officer tells me that he makes more money off of the FHA loan, it's tough to trust what people say and what their intention is...:(

 

Have a great day guys, thanks for the comments!

Aug 25, 2010 03:12 AM #3
Rainmaker
59,249
Sergio DePinto
Royal LePage Maximum Realty.,Brokerage - Greater Toronto Area - Vaughan, ON

Krista,

 A powerful post and arqument .... Too much does go on behind the scenes and although the feds intention is good.. it's far from practical.

I love reading the passion in your posts.. always a great read.

Sergio

Aug 25, 2010 10:43 AM #4
Rainmaker
147,409
Krista Lombardi
Prudential Calfornia Realty - San Diego, CA

Thank you Sergio!  I love this industry and love what I do, so I post and enjoy your opinion and everyone else's that has a moment to look at them:)))

 

Take care and best wishes!

Aug 25, 2010 03:35 PM #5
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Rainmaker
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Krista Lombardi

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