What? How can this be? Realtors are still using Mortgage Brokers left and right, so how can I be saying that this is the end of the Broker? It's called the Financial Reform, and it is completely changing the mortgage landscape as we know it.
I have discussed in my previous blogs the effect this reform is having and will continue to have on borrowers and their disclosures and benefits. But what is going to happen to the Mortgage Brokers? First, let's define Mortgage Broker vs. Loan Officer, and then I will show you how it will negatively affect borrowers, Realtors, and of course Mortgage Professionals.
MORTGAGE ORIGINATOR (MO) - This is the new umbrella description for anyone who is an individual that is licensed to "originate" a mortgage.
LOAN OFFICER (LO) - This is typically someone who works for a direct lender. A direct lender can be the banking giants that we see on every street corner, or it can be a mortgage lender that is a small office tucked away in your neighborhood.
MORTGAGE BROKER BUSINESS (MBB) - Is a company that can broker loans to various lenders, and can make varying commissions depending on the program or lender they broker to.
MORTGAGE BROKER (MB) - Is an individual who works for the MBB and usually makes much larger commissions than the LO, but not the salary or draw the LO makes. This commission usually comes from a Yield Spread Premium (YSP).
YSP - The percentage the lender pays the MBB for the mortgage, and it's usually incentivized based on rate, program, or lender. This was the allure of being a MB and working for an MBB, but the financial reform is eliminating the YSP.
The financial reform has introduced a new rule that takes place in April 2011, and this rule takes away the ability for any lender or MBB from "incentivizing" or charging more for a particular program or rate. In other words, they are eliminating the YSP and forcing everyone to make the same amount of money or percentage based on the loan amount only.
Not only that, FHA now requires the Lenders be responsible for the actions of the MBB. This way the MBB can't originate 50 fraudulent loans and then file for Bankruptcy leaving no one responsible. Instead the Lender (with large financial net worth and liquid money) is held responsible for the loan that the MBB originated. So in turn, Lenders now highly restrict and limit the MBBs while requiring then to have large sums of net worth and a majority of that liquid, the same way the Lenders are required by FHA. This is not possible for most, or they are simply being pushed out of the business. HENCE, THE PROVERBIAL DEATH OF THE MORTGAGE BROKER BUSINESS AND MORTGAGE BROKER INDIVIDUAL.
Why does this matter? Because there will soon be a mass exodus towards the lending giants and the smaller lenders.
Why should this matter to you? Because now there will be far less competition in the market, which means a smaller potential for you borrower to get the best possible deal. Competition is what drives our economy, and it is why our nation has been such a successful capitalist country for centuries. Yet, the BIG Government has their hand in the lending industry to such an extent that the competition will not be very strong.
I understand why this was done. Borrowers can now see EVERYTHING that is being charged and why. As I have marketed my niche to LOs that can't offer the Reverse Mortgage, I have seen a lot of seasoned veterans who many have owned their own MBBs working for a small salary and tiny commissions at one of the banking giants. This is the beginning of the end of Mortgage BROKERS as we know them!
P.S. I have always been a MB, but now am a LO at a small lender. I am fortunate enough to work for someone who saw the writing on the wall last year, and I will still earn like an MB and work like an LO. The best of both worlds! Thank you for reading my post!