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Bob H
303 Posts |
 Posted - 04/01/2008 : 2:29:50 PM
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Good Afternoon,
I am the sales manager for a medium sized mortgage broker only licensed in the State of MD. I oversee 7 loan originators and I have been in the mortgage business for 10 years. In response to the reforms outlined in Docket No. R-1305, I would like to present my thoughts on one of the main points of the proposed regualtion.
Point #1:
A new disclosure for Mortgage Brokers only that will require you to disclose, before application, what your mortgage brokerage fee (front end AND back end fees) will be on the loan and this cannot change.
I understand that transparency is of the utmost importance for consumers when understanding the cost and terms of a mortgage transaction. Under current regulations brokers already disclose all upfront fees and yeild spread on several documents including Good Faith Estimate, Mortgage Broker Agreement, and Maryland Financing Agreement (other States have their own versions of these forms). All lending channels (Broker, Correspondent, and Retail) receive compensation based on the interest rate. Placing the full burden of upfront disclosure prior to application solely on brokers leaves an unfair and deceptive advantage to correspondent and retail lenders. Every loan is unique and it is nearly impossible and quite unreasonable to require a broker accurately calcluate fees prior to application.
My business corresponded in 2007 and we sold loans off of our warehouse line. This type of transaction is exempt from disclosing our Service Release Premium (SRP). SRP is the same type of compensation as YSP however it is not received until after the loan is sold vs. closed and funded. It is important that the Federal Reserve understands that SRP is negotiated and calculated at rate lock just like with mortgage brokers. This type of compensation is known by the correspondent lender at the beginning of the process and can be disclosed (to the penny) at the time of rate lock.
Retail lenders work the same way but typically sell loans in more of a bulk delivery as opposed to the single delivery that correspondent lenders sell their loans. Bulk transactions still pay a premium based on interest rates and rate lock dates just like Broker YSP and Correspondent SRP. The concept is identical in the sense that higher interest rates = more profit. Retail banks regularly hide behind the lack of disclosure requirements and still place borrowers into higher rate loans for the sake of pure profit. Of course there is no mention of this practice because the compensation to the retail and correspondent lender is completely hidden from the consumer due to the lack of disclosure regulation for these institutions.
In summary, this new rule will put mortgage brokers at a severe disadvantage caused by creating more disparity on the already uneven disclosure regulations. If the ultimate goal of the proposed regulation is for the benefit of the consumer when understanding compensation to the originating party, it is taking a big step in the wrong direction. Current regulations are already uneven when disclosing compensation from the interest rate. Brokers are the only mortgage originators that are currently required to dislcose this type of compensation. Correspondent Lenders and Retail Banks currently do not have to disclose their profit on higher rates in any way, shape, or form. Making only brokers disclose compensation before application will actually reduce competition in the market place and can easily steer borrowers towards higher interest rate loans with lending facilities that can hide behind the fact that they need not disclose the profit made on a higher interest rate. Full disclosure upon rate lock is a much better solution. In my business, it is our practice to accurately disclose (almost to the penny) all fees (including 3rd parties) at the time of rate lock. Until a rate is actually agreed upon and locked, calculating fees and compensation is nothing more than an educated guess. Locking a rate does not commit a borrower to anything. It does however protect the offer of credit for both the broker and the consumer and fees can be disclosed very accurately. Interest rate and the cost of that interest rate are the only way to compare one loan offer from another. If the ultimate goal of the Federal Reserve is to truly make mortgage lending and compensation transparent, the only way for consumers to have an apples to apples comparison is to have all mortgage lending instituations be subject to the same dislcosure regulations |
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americanheartlan
2237 Posts |
Posted - 04/01/2008 : 2:33:01 PM
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| Excellent...Now, who's going to read this? |
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LoanPro71
2884 Posts |
Posted - 04/01/2008 : 2:38:03 PM
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Don't worry about it. The Federal Reserve is "all-wise" and "all-knowing" and they have your best interests in mind.
Be careful out there ... if you criticize them then their cheerleaders might label you "nutzo" or "kooky" and ruin your "reputation".
Just obey, and be a good German.
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CoolMtgGuy
4064 Posts |
Posted - 04/01/2008 : 2:38:10 PM
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| It is accurate but I don't think the politicians care too much that mortgage brokers are at a disadvantage vs their competition. It would probably enhance your position to re-direct the emphasis on the downside to consumers. eg: "Transparency is a good thing for the consumer but transparency imposed on one of three sources of mortgages is unfair to consumers". |
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Bob H
303 Posts |
Posted - 04/01/2008 : 2:51:05 PM
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I received this from the NAMB today:
Proposed Federal Reserve Board Rule Contains Provisions to Eliminate the Independent Mortgage Broker!
We need your help!
The Federal Reserve Board has issued a proposed rule that could dramatically harm your business. All public comments must be RECEIVED (not postmarked) by April 8. Review the information and links below then follow the instructions. Time is very short - get your comments in today!
RULE IMPLICATIONS
-A new category of "higher-cost" loans, which will eliminate all stated and no-doc loans.
-New APR triggers of 3% (1st mortgages) and 5% (subordinate mortgages) above the 10-year U.S. Treasury, causing nearly every mortgage to be classified as a "higher cost" loan. As such, the provisions of the Fed Rule will make financing nearly impossible.
-Requiring all Mortgage Brokers to disclose, before application, what your mortgage brokerage fee (front end AND back end fees) will be on the loan and this cannot change.
-Originators must determine that the borrower has the ability to repay the mortgage for at least 7 years.
ACTION NEEDED
Please have everyone in your place of business submit comments. NAMB has prepared a 3-page bullet-point summary with guidance on writing your comments. To access the summary, please go to www.famb.org/gaup/Comment%20letter%20bullet%20points%20grass%20roots.doc. It's very important that you craft comments in your own words following NAMB's suggested points. In addition, a copy of the entire Fed Rule can be found by clicking here.
SUBMISSION
You may submit comments, identified by "Docket No. R-1305" by any of the following methods:
E-mail: regs.comments@federalreserve.gov. Include the docket number in the subject line of the message.
Fax: (202) 452-3819 or (202) 452-3102.
Mail: Jennifer J. Johnson, Secretary, Board of Governors of the Federal Reserve System, 20th Street and Constitution Avenue, NW, Washington, D.C. 20551.
All public comments will be made available on the Board's Web site at http://federalreserve.gov/generalinfo/foia/ProposedRegs.cfm as submitted. Accordingly, comments will not be edited to remove any identifying or contact information.
If you have questions, please contact mamb@mamb.org.
This is a critical time in the mortgage industry and Mortgage Brokers must act NOW! Please submit your comments today!
Mortgage brokers originated over 60% of the mortgage loans in the US in 2007. We are 60% of the competition in the market! It will be a sad day if unreasonable and counter-productive regulation takes that away. It's time to step up or step down and get a job selling appliances at Sears. |
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jkurland
261 Posts |
Posted - 04/01/2008 : 3:01:48 PM
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| There is nothing illegal about you educating your borrowers on precisely the amount of money that the LENDER will make over the lifetime of the loan. Don't get discouraged - get even. |
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americanheartlan
2237 Posts |
Posted - 04/01/2008 : 3:02:15 PM
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| I applaud your effort. |
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VVance
2517 Posts |
Posted - 04/01/2008 : 3:21:38 PM
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Bob,
Great Post. The issue never has been disclosure and fairness to the borrower. It's a rigged game, which if accomplished, will leave the consumer with very few choices for financing, and probably further cripple the home lending community.
These are the same great minds which pushed through the current bankruptcy laws, making it almost impossible for consumers to have an out from consumer debt, which has contributed to the higher foreclosure rates.
I particuarly like, "Originators must determine that the borrower has the ability to repay the mortgage for at least 7 years". Well, maybe we can change the verbiage on a VOE to read "Probability of continued employment for 7 years". |
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LoanPro71
2884 Posts |
Posted - 04/01/2008 : 3:23:50 PM
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quote:
Originally posted by VVance
Bob,
Great Post. The issue never has been disclosure and fairness to the borrower. It's a rigged game, which if accomplished, will leave the consumer with very few choices for financing, and probably further cripple the home lending community.
These are the same great minds which pushed through the current bankruptcy laws, making it almost impossible for consumers to have an out from consumer debt, which has contributed to the higher foreclosure rates.
I particuarly like, "Originators must determine that the borrower has the ability to repay the mortgage for at least 7 years". Well, maybe we can change the verbiage on a VOE to read "Probability of continued employment for 7 years".
LOL ... yeah ... I love the 7 year continued probability of employment part.
The banks don't like competition.
That's all this is about.
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Bob H
303 Posts |
Posted - 04/01/2008 : 6:35:34 PM
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The 3% APR trigger seems a little silly as well. A high cost loan can be defined either by rate or actual closing costs. The difference between the note rate and the
APR is a better reflection of cost. I see what they are getting at with the lower trigger but in todays investment enviroment, the treasury yeild should absolutely not be used as a benchmark for mortgage interest rates. As we (in the business) already know, the spread between the treasuries and comparable loan products is currently running at a 20 year high (almost 2.5%!). Our par rates already approach this new trigger. Seems pretty silly. The risk premium built into the spread between MBS's and treasuries should be regulated too. It should never exceed 1.5%.....hahaha....what a joke. |
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LoanPro71
2884 Posts |
Posted - 04/01/2008 : 11:32:03 PM
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And to think ... these same people are in absolute control of our money supply. This should scare the sh*t out of everyone.
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oldmlb
138 Posts |
Posted - 04/02/2008 : 01:50:29 AM
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| I guess I'll just move my office back down to the Bada Bing. Keep my accounts in a little black book in my coat pocket. Keep it all on a friendly basis. Who needs all that paperwork for a friendly little loan, right? Right. |
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cvm2
242 Posts |
Posted - 04/02/2008 : 07:08:46 AM
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| It will put more brokers out of bussiness |
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EMScommercial
5141 Posts |
Posted - 04/02/2008 : 07:14:12 AM
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| i received it too... |
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