Operation Overwhelm
Contact these people, entities on Friday, Jan 28th, 2011 at 10 am (PST) to express concerns with LO
compensation
At this point, no one is 100% sure of the impact of new LO compensation regulations. It might have little to no impact, or it could have a large impact. In case of the latter, we must have our voices heard. Is it worth 30 minutes to affect the next 30 years (or more) of your career/life? This will take about 30 minutes. Just copy and paste each time so you don't have to retype it. Senator Barbara Boxer
http://boxer.senate.gov/en/contact/policycomments.cfm
Senator Diane Feinstein
http://feinstein.senate.gov/public/index.cfm?FuseAction=ContactUs.EmailMe
House Reps: (Depends on your ZipCode. Enter your ZipCode here to find out who)
https://writerep.house.gov/writerep/welcome.shtml
Federal Reserve
Check ‘Comment For Board' Members
http://www.federalreserve.gov/feedback.com or send email regs.comments@federalreserve.gov
Ron Paul - Congressional Panel Oversight of Fed & Texas Congressman
https://forms.house.gov/paul/webforms/issue_subscribe.html
You may or may not agree with his politics, but he is big on free‐market which is exactly what we need
right now.
Governor of California
http://gov.ca.gov/interact#email
White House
http://www.whitehouse.gov/contac t
Senate Finance Committee
The Honorable Max Baucus, Chairman, Committee on Finance
The Honorable Chuck Grassley, Chairman Ranking Member
No online form. Fax letters to: 202‐228‐0554
House Financial Services Committee
Chairman Barney Frank
http://financialservices.house.gov/contact/contact.shtm l
Operation Overwhelm - Friday Jan 28th, 2011 at 10 am (PST)
Reminder to put this on your calendar and forward to everyone in the mortgage brokerage industry,
title, escrow, appraisers, vendors, etc.
GET ON THE SAME PAGE...PRETTY PLEASE?
At minimum, in everyone's best interest (including the government's), we are urging the Fed, Congress
and the White House need to get on the same page. As it stands, the Fed is set to implement new LO
compensation regulations on 4/1/2011. Then in late 2011, Congress is likely to start enforcing the
mortgage piece of Dodd‐Frank. The in 2012, it's possible the new ‘Consumer Finance Protection
Agency' may come out with even MORE regulations and or new forms.
Are 3 rounds of potentially conflicting regulations productive for anyone, including the consumer?
(Technically, 5 rounds, if you count the 2010 GFE which was botched, then HVCC, which later had to be
repealed and replaced)
TESTING & IMPACT
Not only do we need to push for the Fed, Congress and the White House to coordinate their efforts, but
we also need to remind them that these new regulations, many of which are good and well‐intentioned,
could actually have some unforeseen consequences, potentially NOT great for the consumer.
Has there been an ‘impact study' so see what the short‐term and long‐term impacts will be on the
consumer, broker and lender? (Had they done an impact study before implementing HVCC, they could
have avoided lots of problems). In 5 years, will there be any competition in our industry, or will
everyone be offering roughly the same price? Is that good, healthy? Or does that look like Soviet‐era
Russia?
COMPLIANCE AND COMPETITION CAN PEACEFULLY CO‐EXIST
As an industry, we clearly want the consumer to be protected from predatory lending practices. (Yes,
we had some bad actors and we applauded the NMLS regulations which largely eliminated them) But,
we also believe the consumer has a responsibility to obtain competitive quotes from banks, brokers,
credit unions, etc.
Requiring mortgage brokers to pre‐determine ‘static' compensation with our lenders would be
analogous to a football coach trying decide in the first quarter what play he's going to call in the fourth
quarter when it's 3rd down and 10 and his team is at the 40 yard line with 10 seconds to go in the game.
It just doesn't make a lot of sense. The coach can only call the play at that moment. In our situation,
brokers must be nimble and able to choose lenders and programs without having their hands tied by
pre‐determined compensation agreements.
ALTERNATE SOLUTIONS - IDENTIFY HIGH RISK LOANS
One of the fundamental issues a few years ago was lenders were paying a significantly higher YSP on
what could be described as ‘high risk loans', i.e. Neg Am. Therefore, in some circumstances, borrowers
who would have been better off in a 30 yr fixed loan, were instead placed into a Neg Am that paid a
higher YSP to the originator. That was clearly bad.
However, the solution is straightforward.
The Fed/Congress can establish a category of ‘high risk' loans. Then, the Fed can prohibit lenders from
paying higher YSP on those ‘high risk' loans.
It's an elegantly simple solution that will protect the consumer, still maintain a healthy sense of
competition in our industry, and as an added benefit, will avoid the confusion, cost, and administration
for lenders and brokers that is associated with implementation of the proposed changes by the Fed, the
subsequent changes in Dodd‐Frank later in 2011, and possible further changes by the new ‘Consumer
Finance Protection Agency'.
Dear XXX
I'm writing to you today about a critical issue, the changes to mortgage broker compensation
being called for by the Fed (via the Dodd‐Frank Act), which are currently scheduled to take
effect on April 1, 2011. Although well intentioned to stop mortgage broker steering and "bad
actors" in the market taking advantage of consumers, the actual effect of these new regulations
will be to stifle consumer choice, and will actually slow the recovery of the housing market
significantly.
As an ethical and concerned mortgage broker with nearly 7 years experience (and 16 years of
business finance experience prior to that), I want to see unethical and unknowledgeable
mortgage broker OUT of my industry - they don't belong here. However, I believe that there is
a lot that has already been done to remove these folks from the market, and that we need time
to let these improvements take effect. Additionally, any further regulations to be implemented
to protect the consumer must be implemented carefully so as not to hurt consumer choice or
slow an already fragile and nascent housing recovery. I implore you to listen to the ethical
leaders of the mortgage industry - we work with consumers every day, and understand their
needs and concerns. Some of my suggestions are below.
We need to preserve Consumer Options for Payment of Origination Fees. The bill will prohibit
the financing of loan originator compensation if loan originators concurrently receive
origination fees from the borrower. We need to allow the payment of origination fees up front
and through the interest rate as long as all such fees "were fully and clearly disclosed and
agreed to by the consumer earlier in the application process as defined in TILA and do not
increase based on changes in the terms of the individual loan or the consumer's decision about
whether to finance such fees or charges." The current language will create situations where
borrowers will have severely limited financing options to meet their needs. Language needs
to ensure that a borrower has the ability to finance closing costs as they deem appropriate for
their individual circumstances (i.e. cash available at closing, length of time planning to remain in
home, refinance, etc.). Congress should preserve the borrowers' ability to choose low‐cost and
zero‐point financing for their homes by financing fees and/or costs into the rate or loan
amount, while protecting consumers from hidden charges or abuse.
Under existing law, consumers have the option of financing some closing costs into the interest
rate and paying some up front at the closing table instead of the all or nothing approach
included in the conference text. We understand that consumers appreciate and utilize the
existing option as they want to balance their rate with their ability to pay some closing costs up
front. The new prohibition in the base text takes such an option away from the consumer.
There does not seem to be a logical basis for removing the existing option of paying for closing
costs especially considering the new Good Faith Estimate form required by the Department of
Housing and Urban Development (HUD) requires the loan originator fee to be disclosed upfront
and such fee cannot be changed.
I recommend preserving the existing consumer financing options of paying some closing costs
either in cash at the closing table or some through the rate so that borrowers continue to have
the ability to choose low‐cost and zero‐point financing for their homes and are still able to
benefit from financing their closing costs at their choice. There is no question that abusive
practices in mortgage origination must be eliminated and that consumers should have a right of
legal action when they are victims of predatory lending practices.
The institution of the NMLS and licensing regulations for mortgage brokers has done a lot to
remove bad actors from the market, as many of them were not able to pass the required
criminal background checks or the required competency tests. These regulations are still in the
process of being implemented, and we need to allow sufficient time for them to improve the
quality of mortgage origination in the US - they ARE working, and WILL work to make sure that
only qualified and knowledgeable mortgage originators are allowed to originate loans.
Additionally, most lenders provide brokers with maximum compensation levels, whether this
compensation comes from the lender, the borrower, or both. If it is believed that these caps are
currently too high, then they can be lowered, but limiting broker compensation by making
brokers make a "deal" with each individual lender is not the way to go. These "deals" will
encourage brokers to only work with lenders who pay them the highest compensation, whether
this lender is actually providing the best loan for their borrower. It is well intentioned but
misguided. Borrowers in the lower end of the market may end up being effectively shut out of
homeownership because they won't have the necessary funds to pay points up front if there is
not sufficient rebate available to the broker from the lender.
Once again, as your constituent, I ask you to halt the implementation of a bill which was, I
believe, more geared to making constituents feel like their elected officials were doing
something to fix a financial crisis during the midterm election season than anything else. This
legislation WILL hurt consumers, and WILL hurt small businesspeople in the mortgage industry.
Additionally, I believe strongly that limiting consumer choice will have a chilling effect on any
potential housing recovery. We cannot afford that in the US, we just can't. We need to fix our
problems, get our housing market healthy again, and move on.
Thank you for your consideration of these issues as you contemplate financial regulatory
reform legislation. I appreciate the opportunity to share my views and the views of the leaders
of my industry.
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