THE END OF THE MORTGAGE “BROKER”

By
Mortgage and Lending with PS Mortgage Lending 305-791-4874 or 888-845-6630 365768

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!

Posted by

 

 

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Information and content in this blog is original to Phil Stevenson

Please click the "SUBSCRIBE TO MY BLOG" button on the right, and receive more Traditional and Reverse Mortgage information in Florida and other parts of the US & Puerto Rico.

 

Phil Stevenson

PS Financial Services

Owner and Principal Mortgage Originator

Certified Reverse Mortgage Professional (CRMP)

LO #365768

NMLS #968090

Cell: 888.845.6630

Miami Mortgages & Florida Mortgages

Copyright © 2013 by Phil Stevenson & PS Financial Services, LLC

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Re-Blogged 15 times:

Re-Blogged By Re-Blogged At
  1. Mindy Sylvester 09/03/2010 07:21 AM
  2. Susan Morrison 09/03/2010 11:11 AM
  3. Lori Lincoln And Associates 09/03/2010 11:21 AM
  4. Tom Greto 09/04/2010 03:20 AM
  5. Jeff Rainwater 09/04/2010 04:54 AM
  6. Brian Clayton 09/04/2010 05:01 AM
  7. Ceci Burklow 09/04/2010 05:18 AM
  8. Brian Gibbons 09/04/2010 06:04 AM
  9. Mary Macy 09/04/2010 09:41 AM
  10. Jackie - computer-training-atlanta.com 09/04/2010 09:56 AM
  11. Rob Rosa 09/04/2010 01:08 PM
  12. Rose Vasilakis 09/05/2010 05:48 AM
  13. Robert Nichols 09/07/2010 09:06 AM
  14. Nevin Williams 09/07/2010 11:36 AM
  15. Adam F 09/10/2010 09:00 AM
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Show All Comments
Rainmaker
1,065,348
Rob Arnold
Sand Dollar Realty Group, Inc. - Altamonte Springs, FL
Metro Orlando Full Service - Investor Friendly & F

The Dodd Frank Wall Street reform act is a real shame.  It has truly damaged the lending industry as we know it.  Both Dodd and Frank should be thrown out of office on their tails for proposing this nonsense.

Sep 04, 2010 11:57 AM #112
Rainmaker
121,008
Rob Rosa
Berkshire Hathaway - Wethersfield, CT
Personal Real Estate Expert

Thank you for the excellent information.

Sep 04, 2010 01:06 PM #113
Anonymous
Madison Ballagh

I agree.   I have seen so many good Mortgage Brokers go and work with the Big Bad Bank of America and other banking giants.

Sep 05, 2010 01:11 AM #115
Rainer
288,529
Thomas McCombs
Century 21 HomeStar - Akron, OH

Well, it seems that the consensus among the commenters here is that things MAY change.

Experienced and informed industry professionals are clearly not in agreement as to what this all means.

So as is usual when we do not have a clue, we say "time will tell"!

 

 

Sep 05, 2010 02:55 AM #116
Anonymous
Blair Warner - Upgrade My Credit

I used to be a partner in a mortgage brokerage firm, and we shut our doors at the end of 2008 like a lot of people did for various reasons. I am sure it has already been stated, but in my opinion, I don't think it is bye-bye broker. Yes, things are changing, and yes in an environment of flux and uncertainty people often "freeze", which looks like death, but it is not death. The industry will thaw out. There will be fewer in the business, and definitely fewer entering the business due to, among many other reasons, how difficult it will be to make a good living at it. However, just like insurance and financial advising, if you are one of the few, and you are good, and you build a reputation, realtors and buyers will flock to you. Brokers are needed! They are the best choice for giving the buyer the best choices for their particular situation.

Would I advise my children to go into the business? Not right now, but in the future, when things settle down, it is indeed and honorable profession to help people with ownership.

 

Sep 05, 2010 04:11 AM #117
Rainmaker
499,177
Patty Clark
Morningside Homes, LLC 720-231-5200 - Denver, CO
Helping Families Move with Care

Thank you taking your time to write this post. The government is totally out of control.  I wish they would just leave us all alone so we can rebuild the economy with housing.

Sep 05, 2010 05:09 AM #118
Anonymous
Stefanie Bernstein

Very interesting article.  It never ceases to amaze me how the government gets involved.  They are either involved too little or too much.  We are a creative nation, I am certain that the mortgage brokers will get together and make sure there are still competitive products and market out there for the consumer.

Sep 05, 2010 05:17 AM #119
Rainmaker
190,966
DEBORAH STONE
Balboa Real Estate San Diego, CA - San Diego, CA

Phil

It would be naive to think that the mortgage industry would not change in light of the changes in the Real Estate industry. I thought fixng commissions was violating the Sherman Antitrust laws? In any case, I hope whatever happens regulates the business in a good way, because for sure: without you mortgage guys, we real estate guys are not making any money!

Sep 05, 2010 05:46 AM #120
Rainer
82,552
Jed Wunderli
Alterra Home Loans - Las Vegas, NV

Phil - I think the lawmakers have really messed it up for the borrowers.  Their intention was to protect them and make it easier for them to understand but between the GFE 2010 and the Financial Reform act, borrowers are more confused than ever and have fewer choices at higher average costs.  Because loan officers are now responsible to pay for certain (legitimate) fees that may be undisclosed or under-disclosed (including transfer tax and owner's title insurance - typically seller's fees anyway), the GFE has become more of a worst-case scenario than a good faith estimate; this means that potential clients aren't really seeing the likely fees for their transactions, they are seeing what is likely to be the most they would have to pay.  Furthermore, by taking away YSP, the client loses out on choices such as accepting a higher rate with lower costs or going with a lower rate and paying more up-front.  

 

The lawmakers need to quit consulting with the special interest executives who don't work on the front lines; they need to consult with the loan officers, escrow and title officers, and Realtors to enact meaningful change.  A three page GFE that lumps fees together and doesn't require a signature from the borrower is not an improvement over a one page GFE that breaks down every fee and requires the borrower's signature.  We need to start over with the so-called improvements.

Sep 05, 2010 05:59 AM #121
Rainmaker
190,802
Darren Revell
Keller Williams Realty Temecula Valley - Temecula, CA

It will be interesting to see how all of this plays out.  Would hate to see the mortgage brokers gone.. Would be a huge impact of the real estate business and economy..

Sep 05, 2010 06:06 AM #122
Rainer
361,438
Eugene Adan
Adan Properties, Carlsbad, CA (760) 720-9710 - Carlsbad, CA
Carlsbad Real Estate

Phil,

The malaise in the real estate market has caused government to get too involved.  A hedonistic appetite for borrowing, unscrupulous lending practices, and overly optimistic thinking has gotten us where we are.  Government's overinvolvement will be a catalyst for great change some good and some bad.  We will have to see how it filters out.

Sep 05, 2010 12:03 PM #123
Rainmaker
108,186
Hans Bruhner
First Priority Financial - Sebastopol, CA
Sonoma County Home Loans

hmmmm. I have to respectfully disagree with you on this one. Some of the things you said about being a mortgage banker are true and that is why I am a banker and a broker.

January 1st of this year the new GFE came out and as a broker I can't make YSP anymore. If I am sending a loan to a bank as a broker and the bank pays YSP then I can't have it, that money goes to the borrower, if the YSP goes up then the borrower gets a bigger amount of rebate and if it goes down he gets less. In the new rules, it says we can't get paid more by changing the program or the rate and that is true now because changing the rate changes the YSP which goes to the borrower.

I think the system is actually more fair as a broker and I disclose that way more often than as a banker. As a broker, I charge the client what I believe is fair and they agree to it. If they take a higher rate with more rebate (YSP), they get more money credited to them to pay me and/or other costs.

Both bankers and brokers charge LLPA's (Loan Level Price Adjustments) for things like lower LTV, cash out, higher or lower FICO scores etc. I had a refinance loan where the value came in much higher than expected and because the LTV went down on this cash out loan, the bank paid 5/8 point more rebate which on a $600,000 loan turned out to be $3,750 in cash and there was no choice but to give it to the borrowers (which I wa happy to do). If I had acted as a mortgage banker, I could have taken that money, split it with my clients or given it to them. My question to AR members is what do you think the big banks would have done with the extra rebate?

The more things change, the more they stay the same.

Sep 05, 2010 02:39 PM #124
Rainer
27,835
Preston E. Howard
Rose City Realty, Inc. - Pasadena, CA

Phil:

I had a chance to review the Dodd-Frank bill's provisions regarding yield spread premiums. This had been a major point of contention in the mortgage market, as many mortgage brokers like me make “no cost, no fee” loans based on the ability to earn YSP. Initial discussions revolved around total elimination of YSP deals, and as you can imagine, the unbelievable ensued. Accordingly, negotiations between the various groups (federal regulators, consumer groups, and the mortgage industry) commenced and a compromise was hammered out which has now become law. Now, according to the law "no mortgage originator will receive any compensation which varies based on the terms of the loan other than the size of the principal loan balance." The lone exception, which placates the various factions, is when "the originator doesn’t receive any direct compensation from the consumer." Moreover, "no upfront charges such as discount points, or origination fees may be assessed to the consumer outside of the charges derived from a bona fide third party entity which does not have an affiliation to the creditor or originator whatsoever."

So for now, it appears as if the mortgage broker community can still offer the no-cost, no-fee product, but its members cannot charge any upfront fees or earn compensation from an affiliate.

Sep 05, 2010 03:20 PM #125
Rainmaker
271,377
Phil Stevenson, CRMP
PS Mortgage Lending 305-791-4874 or 888-845-6630 - Miami, FL
"Mortgage Nerd" in Miami, Florida and Texas

I want to thank each and every one of you for your comments!  I have read them all as they came in via email, and I have answered many privately.  I acheived my goal of getting lots of differing views, and some of them were passionate and detailed.  Looks out for part 2 of this post, which will dive deeper into some of the different view points.

Thanks!

Phil Stevenson

Sep 06, 2010 01:09 AM #126
Rainmaker
89,468
Scott Petersen
Client First, Realtors - Canton, MI - Canton, MI

Time will tell if all of the cures for the crash will help or cause RE to remained stalled for years to come. I am guessing the latter.

Sep 06, 2010 07:07 AM #127
Anonymous
karen perkins westchester new york

This was the first blog I have read from Phil, but VERY interesting news! The transparency of the deal is a good thing, but I also believe that without competition, many borrowers will be paying more.

Look foreward to your blogs from now on.

 

 

Sep 06, 2010 11:07 AM #128
Rainmaker
271,377
Phil Stevenson, CRMP
PS Mortgage Lending 305-791-4874 or 888-845-6630 - Miami, FL
"Mortgage Nerd" in Miami, Florida and Texas

There was a comment written that was completely insulting and attacking, and I had to delete it.  It was unfounded and the writer did not thoroughly read my post.  He continued to state these changes were coming to everyone, and I had written those exact words in bold in my post.  Either way, I ALWAYS welcome debate and disagreement, as stated in my last comment above.  It is difficult for me to delete a comment, but I will not accept disrespect and insults to such an extent.  We are all professionals and should act like it.

At this point, I will shut off the comments for this blog.  I will post part 2 of this blog Wednesday morning, September 8th.  Please subscribe to my blogs in the top right of this post so that you can view and comment on the follow up posts.

Thank you all who agreed and disagreed, respectfully and professionally!

Sep 06, 2010 03:53 PM #130
Rainmaker
271,377
Phil Stevenson, CRMP
PS Mortgage Lending 305-791-4874 or 888-845-6630 - Miami, FL
"Mortgage Nerd" in Miami, Florida and Texas

Here is the link for part 2 of this blog.  Please read both parts and submit your comments on the Part 2 comments section.  Thanks!

THE END OF THE MORTGAGE "BROKER" Part 2

Sep 08, 2010 01:14 AM #131
Rainmaker
271,377
Phil Stevenson, CRMP
PS Mortgage Lending 305-791-4874 or 888-845-6630 - Miami, FL
"Mortgage Nerd" in Miami, Florida and Texas

As the new LO compensation rule approaches (On April Fools Day no less), I am reopening this blog for comments.  Thanks!

Mar 16, 2011 05:58 AM #132
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Jun 12, 2018 03:54 AM #133
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Rainmaker
271,377

Phil Stevenson, CRMP

"Mortgage Nerd" in Miami, Florida and Texas
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