HR3915 - Anti Predatory Lending Bill

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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 and call your congressman or congresswoman and say no to HR3915.

There is also an online petition that can be signed by going to

Please share this blog posting or Petition URL with co-workers, associates or whoever you feel would be opposed to the bill. 









Comments (10)

douglas moore
Alain Pinel Realtors - Walnut Creek, CA


another good heads up on the HR3915- thanks for pointing out that online petition-- i have always favored a free market system and lots of choices of lenders, realtors or any other service provider is always a good thing.

Nov 01, 2007 06:18 AM
David Conaway
MetLife Home Loans - Bethesda, MD
They won't pass a bill that will eliminate the YSP, just cap the amount. There is nothing wrong with providing a loan that pays a YSP back to the broker as you demonstrated above.  There is a problem when a broker can't self regulate the amount of points charged on a loan whether it's paid up front or made in a YSP.  My guess is lenders will make internal changes to the policy of paid YSP's in order to insulate themselves from future lawsuits and intervention.  Retail has adopted the limits on compensation years ago, it's just a matter of time for wholesale.  I could be wrong.
Nov 01, 2007 06:35 AM
Keith Stoller
Keith Stoller Tax & Business Solutions - Bakersfield, CA
Another politician trying to 'improve the world' through legislation.  The old adage is proven right again: 'you can't legislate common sense.'  Thanks for the post.
Nov 01, 2007 07:48 AM
Todd Gatherum

I'm sorry but I agree with this bill with what I know.  If all mortgage brokers were honest and you could self regulate, then maybe this wouldn't be necessary.   But, too often the abilities you guys have are used to line your own pockets and not do what is truly in the best interest of the customer.  And, because you can hide it and get 2,3,4% or more,and the client is none the wiser, you guys will continue to do so unless someone regulates you. 

Most customers don't understand this avenue for you to get additional fees and income from this and other sources on the back end; many would be incensed if they knew how much you guys are making off them. 

At least this might help to have the customer "see" how much you guys are truly making off their loan.

Don't get me wrong, I believe you should earn an income, just not at the expense of an unknowing customer.  

that's my opinion

Nov 02, 2007 05:40 AM
Anthony Torres - Glendale, NY

First of all, Yield Spread Premium has a cap of 2% on conforming loans. Even most subprime lenders during the middle of the refinance boom had a cap of 2% on the yield spread premium. As someone who is employed with a bank that provides mortgages, you should know that your bank does not have to disclose their service release premium as it's compensation after closing, not a result of.

Yield spread premium is disclosed on all disclosures (banks do not have to disclose SRP) and can be seen on each and every HUD-1/Settlement Statement as (P.O.C. $2,000). The mortgage brokerage industry is the only industry where the consumer is privy to the amount of profit margin a company is making.

How incensed do you feel consumers would be if they knew how much the mortgage bankers were making on their loans? The bankers make much more on the loan then do the mortgage brokers. True, the mortgage brokerage industry could have done a better job in policing our own industry but is that not the job of the state banking departments and government. As in any industry there is a bad element.

Too much of the blame has been placed on the mortgage brokers for the mortgage meltdown. Although mortgage brokers are responsible for approximately 70% of all loan originations in the country, 100% of the loans are underwritten, quality controlled, verified, closed, funded and sold by the mortgage banking institutions. Where is the media attention being placed on real estate brokers/agents, real estate appraisers, the banks themselves and the secondary market investors? I guess it much to easy to blame the mortgage brokers and the use of yield spread then admit the blame needs to be shared.

This Bill is nothing more than a way to destroy the mortgage brokerage industry of this country. Should this bill pass it will be interesting to see if mortgage lenders will decrease their rates in order to make homeownership more affordable for the American public.  Will they continue to charge discount points which should be used to buy down the mortgage rates and put it into their pockets?

Mortgage bankers want nothing more than to do away with the mortgage brokerage industry with politicians as their allies.  Mortgage brokers are already more heavily regulated then mortgage bankers and this bill is nothing more than a ploy to destroy.  As usual, the bottom line comes down to bankers trying to find a way to increase their profit margins. Mortgage brokers are nothing more than a scapegoat.





Nov 02, 2007 06:04 AM

I think we are seeing the pendullum in full swing. Excpet it's not a pendullum, it's a blundering oaf that would attempt to distinguish the competition and the well thought mortgage professional that actually understands this industry and what a good mortgage loan truly is.

You see, the true mortgage professional knows, in terms of ethics, what is just and beneficial and what is not. The collection of yield spread premium is a way for us to be compensated for services rendered without collecting from the borrower those fees that can be used for compensation. Most of them, mind you, cannot. This is a step towards higher unemployment, foreclosure rates and would further vex our nations ability to over come the worst housing market ever. I'm wondering who is on the take. Mega giant financial corporations like Wells Fargo and Chase using the sub prime scare to motivate the further collapse of this industry and in turn, further distance themselves from anything resembling competition and destroying the competative nature of true mortgage professionals.

Let's get a grip.

Nov 02, 2007 10:16 AM

Why not just make a bill getting rid of the ARM mortgage anyway... atleast an ARM for someone that plans on livign in their house.

I know a lot of people who make good money,but because they are self employed and a score that wasn't exactly great, but not terrible, were only given an ARM with the promise that..get your score up, time will pass, house will go up in value and you can refi!!!  NOW that option for them is gone becasue of tighter restrictions, loss of equity due to declining market.  That promise of. "we know you cna't afford it when it just refi before it does" is gone for them and they are left with the real possiblity of loosing their home.

One in particular started at a 6.95% rate. Taht wasn't even prime. Had she been given a fixed.. she would have no problem. BUT.. now she has a REAL problem. Refi possibility is gone because she has NO equity in he home (where sheo nce had 50K according to the bank appraisal).  She has been paying at 6.95% interest on time for 2 years.. a clear indication she is responsible (and is with ALL her bills).  She DID deserve a FIXED rate and wasn't given one.. and if she weren't promised that .. do as I say and you will be able to ref.. she probably never would have taken the mortgage in the first place...

 Let's write a bill taht makes ARM mortgages illegal!

Nov 03, 2007 02:00 AM
This is bill is showing that government is not in touch with what is going on in this country.  Blame is being placed on mortgage brokers, mortgage businesses for the subprime mess.  While I do agree that that have been broker that have misled, lied, hid things from consumers.  It doesn't compare to what the banks are hiding.  I have worked on both sides of industry from servicing to origination.  The 1-3 percent a broker makes doesnt compare to what the banks are making. Just think how long mortgagors pay interest on theses loans.  Now we all know that most businesses will not pay and employee, consultant, contract worker more than they are making.  So if a broker can make 1-3 percent on a deal that he or she brokered, the company must be making at least twice that over the life of loan.
Nov 07, 2007 05:59 AM
David Conaway
MetLife Home Loans - Bethesda, MD

I just don't understand why brokers continually blame the banks for all of this?  The banks are lending the money and the broker is using the bank.  The bank pays the broker, right?  The broker sets their price based off the going market.  You can choose to pass the savings along to the borrower or you can make your 1-3%.  As to what the banks are mean what they disclose on the TIL? 

You were in servicing, what is the premium on a non-conforming loan today in the secondary market?  It's not dollar for dollar.  Banks can't unload their loans so they have to hold and wait for the market to improve...hence the liquidity issue.  If a broker makes 1-3% on every loan in this market, great for them and bad for the borrower.  Banks hope to make money on the servicing end, but what happens if the house sells or the borrower refi's?  I have the ability to broker loans even though I work for a lender in the retail end.  The spread between wholesale and retail is paper thin compared to where it was 6 months ago.    I have a few friends who are brokers and they see what I see.  Bottom line is performance in loans.  It's a FACT, retail loans preform better than wholesale.  If I'm a lender right now, I'm limiting my risk and focusing on quality.  It's about survival.    I not a bank apologist because I don't see a penny of the % over the term of the loan.  I just find it funny that the money made by brokers is paid by the banks...but it's the banks fault.  Let me just state 99% of my competition are direct lenders not brokers.  There will always be lenders cutting margins to compete.  Brokers don't hold a monopoly on competition.

Best of Luck.

Nov 07, 2007 06:30 AM
David Conaway
MetLife Home Loans - Bethesda, MD


If your friend wanted a fixed rate she should have postponed closing until a lender was able to provide her what she requested.  Who was accountable for her choice in lender?  I'm not sure how she chose her lender but my guess is she won't use them again.  One final note, it appears she may have been in a position that she really wans't ready for the loan she got.  She should have had better options if her income was good, had money in the transaction, and had an average credit score.  Make sure she contacts the existing servicer of her loan and explains her situation.  Have her call everyday if she has to.   

Nov 07, 2007 06:43 AM