LEGISLATIVE UPDATE:
Rob Chrisman offers some of the best reporting and analysis around on mortgage news and legislative developments:
Well, let’s not beat around the bush. According to the popular press, the Federal Reserve scored a victory and mortgage bankers suffered a defeat yesterday when the Senate approved an amendment by a 90-9 vote to preserve Fed supervision of hundreds of smaller banks, instead of transferring them to other regulators. Also, the Senate voted 63 to 36 to approve the Merkley amendment and end mortgage kickbacks and “liar loans.” Sometimes one wonders if politicians know basic economic principals – bond math economic dictate that an investor will pay more for a higher yielding instrument, other things being equal. Regardless of my opinion, yield spread premiums are believed to have encouraged brokers to steer consumers into risky, high-interest loans even if they qualified for cheaper loans. And liar loans let consumers qualify for loans they could not possibly repay if they opted to simply state their income or other assets, rather than waiting for verification. The Merkley amendment can be found at Merkley
As a result of the Merkley amendment, mortgage lenders and loan originators would be banned from accepting payments based on the interest rate and other terms of the loan, which effectively wipes out loan steering, and as I mentioned kills off the yield spread premium – often a key part of broker’s compensation. Proponents say that the amendment will protect homeowners by prohibiting mortgage lenders and loan originators from receiving hidden payments when they steer homeowners into high-cost loans and will create strong underwriting standards to ensure borrowers have the ability to repay their loans. Opponents say that if this passes, it will spell the end of mortgage banking as we know it, and that borrowers should be allowed to cover their closing costs by accepting a higher interest rate loan.
The Senate also voted to keep a measure in the bill, opposed by the mortgage industry, which would require lenders who securitize to retain at least a 5 percent stake in their products. Not even the large lenders can do that if the law applies to conforming product. Democrats on Tuesday defeated a Republican amendment that would have ended government control of the Fannie & Freddie, arguing that the issue should be dealt with separately next year.
Final approval of the Senate bill could come next week. These amendments and the law are not final, and remember that the House bill does not have this language so even if they pass the Senate, there will still need to be reconciliation with the House. There are more than 200 amendments filed on the Senate bill. Any legislation that clears the Senate must be reconciled with a reform bill that passed the House of Representatives in December before Obama can sign it into law. (The Senate unanimously adopted a measure that clarifies that small businesses like jewelers and orthodontists that extend credit to customers would be exempt.) Trade organizations are recommending that members pick up the phone and call their elected officials. (http://namb.www.capwiz.com/namb/dbq/officials/)
May 14th, 2010 at 7:41 pm
The Merkley/Klobuchar amendment is just what the Big Banks want. It’s anti-free market, anti-small business, and will hurt consumers.
I’ve originated thousands of mortgages over my 32 years in the business. My rates and service have consistently been top-notch. I’ve had no regulatory problems and no civil actions of any kind. My customers return to me for their purchases and refi’s, and now they’re referring their children to me. I’m proud of my record and I’m proud of the benefits I’ve brought to my clients.
On any day my rates are from ¼ to ½ percent lower than what the big banks are offering (at the same fees). And most of the time my service will be better—because I’m a long-time professional and I know what I’m doing. And now the Big Bank/Washington cartel, along with sadly uninformed consumer groups, are shoving me out of business. I’m extremely angry.
I’m 62 years old and I’m very good at what I do. I will not work at one of the banks who are closing me down; because, 1) they’re the crooks who actually caused this meltdown in the first place, and 2), they are demanding more and more production from their loan officers and at the same time are paying them less and less.
Sure, there were unscrupulous loan officers making expensive and inappropriate loans to some unsuspecting borrowers in the last 5 years or so. The Big Banks and Wall Street were making billions of dollars on them (read ‘The Big Short’), and they were pushing for loan officers everywhere—including their own loan officers—to make more and more of these loans. People got into the business who were never loan officers before, and never should have become loan officers, in order to make the big profits promised to them by the lenders. Personally, I made a few sub-prime loans, but only after making sure that my customers understood that the ‘teaser’ rate would be gone in a few years, and that the fully adjusted rate would be very high. I told my clients, “You’ll need to improve your credit because when the rate goes up it’s going to be ugly.” And I only made subprime loans when they ‘walked in the door’; I never actively solicited for them. The worst loans out there in the last few years before the meltdown were the 1% and 2% ‘Option ARMS’. These low rates were only good for the first month of the loan. In the second month the rate went right up to its real rate, which was generally 1.5% higher than the regular 30 year fixed rate loans. Yes, the payment was fixed for the first 12 months of the loan, but the negative amortization (unpaid interest added to the loan balance) was, of course, tremendous. A very bad loan, but the Big Banks and Wall Street loved them, and paid well for them, so that they could have a bigger supply for the pools of these loans they were selling to unsuspecting investors world wide.
But does any of you know about the revised Good Faith Estimate of closing costs? This form shows clearly what the lender/broker are charging for the loan. THIS AMOUNT CANNOT CHANGE, not even by $1, so we are committed to this fee. It’s more than an ‘estimate’, it’s a UNILATERAL CONTRACT. So the loan originators who ‘bait and switch’, or try to hide fees, are exposed.
The new Good Faith Estimate also shows clearly our ‘rebate’ (yield spread premium)—and it’s NOW A CREDIT TO THE BORROWER’S CLOSING COSTS. The YSP is no longer paid to the broker, it goes directly to the borrower. And this amount cannot change at all (after the loan’s locked-in), just like the lender/broker fees cannot change. This new Good Faith Estimate makes the loan costs very clear to the borrower, and we are legally committing ourselves to them. Please, before enacting even more one-sided legislation designed to destroy all of the small mortgage businesses in America, please give this revised GFE a chance!
The Big Banks and Wall Street have hundreds of lobbyists in Washington. The banks have for a long time wanted us brokers out of the business, so that they could have the mortgage business all for themselves. These lobbyists have Congress completely swayed to their side, either through the force of their huge numbers, or by their ‘campaign donations’, or both. We brokers, on the other hand, have maybe one lobbyist. We’re too broke to hire any more than that.
It really angers me that the Big Banks who designed these dangerous loans, and approved them and funded them, so that they could sell them on Wall Street, should get away with the propaganda they’re spouting. Please remember—BROKERS DID NOT DESIGN THESE LOAN NOR APPROVE THESE LOANS! Any bank, investor or Wall Street firm could have determined through their underwriting process that certain borrowers qualified for a better loan, or that some were being charged ‘too much’ on a loan. Those lenders are guilty of designing bad loans and then of approving those loans! Too make this whole debacle our fault is wrong (and absurd).
And consumer groups seem to swallow this hogwash completely. It’s really sad, because the consumer will be hurt tremendously by the elimination of mortgage brokers. By eliminating us, their competition, the banks can and will charge more and more on each loan—and you will never know how much you’re being ripped off, because we won’t be around to give you a competitive comparison.
Let me expand a bit on a point I made earlier—that I make loans that are cheaper than the banks all the time. Most of the wholesale lenders out there don’t sell their loans directly to Fannie or Freddie. They can’t get access to the GSE’s directly, they have to go through a middle man—Wells Fargo, B of A, Chase and Citi. That’s right, the same institutions who were bailed out by Congress—and by us taxpayers, and who are making billions of dollars even now because of the way they’re using those bailouts.
So, for example, let’s say I earn my usual 1.25 points on a loan that I sell to one of my wholesale lenders. That rate is, say .25% lower than B of A’s, at the same fees. But guess who my wholesale lender sells that loan to—B of A! So, B of A is making a good profit on that wholesale loan yet their retail loans are not nearly as good as mine. Do you realize how much B of A must be making on their retail loans? And once we brokers are gone, what do you think will happen to your interest rates/fees? Do you think their rates will go down? Really?
Especially because of the new GFE, which protects the consumer to a degree not matched by any other business that I know of, you should be against the Merkely/Klobuchar amendment. It is blatant power play by the Big Bank/Washington cartel. It’s terribly anti-free market, and it will only hurt you, the consumer. And the Big Banks will have won again. It’s not right.
May 15th, 2010 at 11:16 am
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