Orlando Mortgage Blog

Though several national suits filed against the Federal reserve are pending to amend, if not totally stop, the new Mortgage Originator Compensation rule that is set to take effect this Friday, little is expected to stop the implementation of this highly contested requirement. But here's a little background first. Nothing appears to have had much impact on Congress or the Fed who've basically turned a deaf ear to industry wide leaders for the last 2 to 3 years as they have piled regulation upon law resulting in much complained about changes that have had major impact on an already loopy real estate market down for the count. Like the HVCC appraisal system that took effect 5/1/09, where the lender cannot even tell the appraiser at the time of the order what your value is believed to be, by law folks (so go ahead spend your money to find out it never would have worked to begin with, but that helped you didn't it? We could ask for an opinion before the law change) and required appraiser professionals to work for what are now called appraisal management companies (AMC's, designated if not owned by the lender) for a mere 50% to 2/3 the fee they received before the change, but guess what, the fee is now higher by $50 plus on the average to the AMC (this is controlling their fee). And the report is now more detailed than ever before. So we've lost experienced appraisers with years of market knowledge who can't work for peanuts and don't want to cowdown to lenders rigid requirements that allow little market opinion and basically with little other incentive it can push the final value down. Who wants to spend more time and effort convincing a lender on a value and get paid 50% to do it. Make sense? Not to DC. What's new?

In DC's "News at 6" friendly intent to force feed what they believe to be "consumer friendly laws and regulation" upon us all, we end up with markets that are even more depressed, lenders that are in overkill on approval guidelines at much higher pricing due to conventional and government loan price adjusters for all the new risks they've found that they can price up for after 70 years history. Hey what's another $30 a month to cover this Loan-to-Value risk, oh yeah $50 for that cash out financing risk, oh yes another $100 a month for your lower credit score risk and oh yes the mortgage insurance premium did jump on your FHA loan twice in the last 2 years and it goes on and on. Who do you REALLY need protection from folks? Does this make it easier to sell your home? 

So, in case you think I forgot, back to this Friday and the originator compensation rule change. You got it, it's being jokingly called the "ORIGINATOR APRIL FOOLS DAY". The joke is on us. What's it all about? Pretty detailed for us, but I'm going to try to put it into a nutshell for you. As of Friday the mortgage originator will either be paid by you, called CONSUMER PAID, out of your equity if available as in a refinance or with your funds brought to the closing table on a purchase or refinance. On a purchase you and or a third party such as your seller, builder, realtor or any other third party may contribute to the originator compensation. The second and only other way we can get paid is by the lender called LENDER PAID. In this case only the lender can pay the originator at a predetermined level and no one else including the borrower (controlling our fee). Sounds simple, right? Let's see. Now if a lender rate sheet is pricing the next lower rate down (4.75% vs. 4.875) at only an additional 0.25% point fee to get there or say $250 on a $100,000 loan, you can now pay the difference yourself out of equity or cash at closing and receive the lower rate, or as many originators will now do, pay it out of their yield spread premium from the lender and offer you the better rate at no additional cost for 30 years. Yield spread premium is the main "MONSTER" the Feds and congress want to get rid of...that's why they changed the rules. But the lenders will now price it up anyway and just not call it yield spred. DC argues a consumer pays a higher price with it than under their new system. The industry argues they're totally wrong...deaf ears for two years. In the aforementioned example you'd get the lower rate because we took it out of our fee from the lender and may have paid a few of your fees, but not now under the lender paid option...not allowed by law. As of Friday it's against the law to do that! I know that's dumber than running a knocknee'd gazelle in the olympics. But...you are supposed to believe you are now better off. Also if something happens for whatever cause that your loan closing is delayed and your loan lock expires, under the new law, the originator cannot help with the extension fee according to the law. It's either paid by you, the lender if they are willing, or a third party under both models. An originator may provide a credit under the consumer-paid model, but not under the lender-paid model. A rate lock extension may require a GFE re-disclosure. So, to take that one step further, knowing this is always a possibility, lenders are expected top hedge their price higher up front to cover this possibility...your rate or points would be higher than today because of what might happen, time will certainly tell. You can't expect the lender to lose income, right? On the Consumer Paid originator fee you pay their fee and oh by the way only you, according to the new law. There of course are many details on this side of the fence not addressed here, but you get the gist, right? Pricing or rate is expected to be higher, your pricing options and who can pay them reduced in several ways, our income reduced and for what? I can't get the first person to give me a good answer as to who this is really helping, unless you believe as many do that the only real winner will be the the big 4 to 6 banks out there who control the mortgage market now. What's new, right? All this protectionism is going to kill me and probably cost the market millions and most will never figure it out! What's new?

So if you are ready...I can only say you have more options today than you will probably have this Friday. Tell someone you know.