Consumers will soon have Congressman Barney Frank to thank for higher cost loans should HR3915 pass. HR3915 is an anti predatory lending bill that if passed, will make the payment of yield spread premium to mortgage brokers illegal.
As a mortgage broker, I often write loans for clients where they are not paying a mortgage brokerage fee as it's not in the best interest for them to do so. In this situation I am compensated through yield spread premium. Often the difference in interest rate is minimal and the borrower's situation must be taken into account when deciding on a mortgage program.
As an example, let's say I have a client who is purchasing a home that he's not in love with. He's getting a really good deal on the home and figures he'll live in the property for 2 years sell the home and use the proceeds to purchase a home he truly wants at that point in time. I go back to my client with the below loan options.
Option 1 - $200,000 Loan 0 Points 6.875% 30 Year Fixed Rate - Monthly Payment = $1,313.86
Option 2 - $200,000 Loan 1 Point 6.50% 30 Year Fixed Rate - Monthly Payment = $1,264.14
The difference in monthly payment between Option 1 and Option 2 is $49.72 per month. However, With Option 2 the client would have to pay 1 point equaling $2,000. By dividing $2,000 by $49.72 we arrive at a number of 40 months to recoup the cost of the point. 40 months = 3.33 years of payments.
Should my client choose option 2 and sell his home after 24 months like he plans he would be losing $806.72. Should HR3915 pass into legislation, my client would be forced to pay a mortgage brokerage fee as opposed to allowing the lender to compensate me through the interest rate. In my opinion, HR3915 is not so much an anti predatory lending bill as much as it is an anti mortgage broker bill.
My ability to be compensated by the lenders allows me to provide more financing options to my clients. Without yield spread premium, all clients of mortgage brokers would be forced to pay mortgage brokerage fees. Our competitive advantage would be non-existent allowing us to do nothing for our clients other than shop their loans to our wholesale lenders with no advantage on pricing and provide higher cost loans. HR3915 will also not allow us to assist our clients with closing costs by crediting a portion of the yield spread premium back to the client.
How long will it take the large mortgage lenders to realize that they no longer need mortgage brokers and close up their wholesale channels? How long will it take consumers to realize that the major benefits of working with a mortgage broker are no longer available? Retail mortgage lenders will still be able to charge origination points as well as continue to make their pockets fat through service release premium. No mortgage brokers will fall just short of creating a monopoly on the mortgage industry by the large retail lenders.
Regardless if you are a mortgage broker, consumer, real estate appraiser, real estate broker or real estate agent HR3915 will not be good for any of our industries should it pass. Less financing options will equate to fewer buyers, less sellers and weaken our respective industries.
HR3915 is going to vote on November 8th. Please read HR3915 by going to http://www.house.gov/apps/list/press/financialsvcs_dem/subprimeleg.pdf and call your congressman or congresswoman and say no to HR3915.
There is also an online petition that can be signed by going to http://www.PetitionOnline.com/HR3915/
Please share this blog posting or Petition URL with co-workers, associates or whoever you feel would be opposed to the bill.