Orlando Mortgage Blog

H.R. 3126, the Consumer Finance Protection Agency Act of 2009

September 4th, 2009 2:13 PM by BILL WILBANKS



"New Agency Could Effectively Eliminate the Mortgage Broker Origination Channel" ending effective competition.

"The Administration has proposed a Consumer Finance Protection Agency (CFPA), which targets mortgage brokers now with regulations that could effectively eliminate this mortgage origination channel for consumers, severely limiting competition, increasing prices, and reducing service. Consumers will be forced to obtain mortgages directly from banks, which are not currently equally bound by disclosure requirements about their compensation and fees to you."

"H.R. 3126 has been introduced in the House of Representatives to create the new CFPA. While the legislative language does not specifically reference mortgage brokers, the broad authorities H.R. 3126 provides to the new agency would severely harm the mortgage broker origination channel if the Administration moves forward with its plans as outlined in its White Paper." As quoted from a position paper from the  National Federation of Mortgage Professionals.

Its hard to wrap this attempt, to take control of our rights under a veil of consumer protectionism, into a simple nut shell. But it is important to you to understand what the Administration is trying to slide through if you or anyone you know ever plan to obtain a mortgage in your lifetime.

Here's a brief background of what this is all about...

Mortgages are generally available from:

Institutional Lenders who originate and fund the mortgage loan directly and may or may not retain it on the books and may or may not retain the servicing rights to your payments for an ongoing fee. Their loan originators are usually paid through origination points paid by you or if you take a higher rate the lender pays them directly based on the rate they sell you or in rare cases a flat salary by the lender they work for to sell their company' finite product base. The lenders will charge separate lender fees for items such as underwriting, tax service fees, flood certs and so on.

Mortgage Brokers or Originators for Mortgage Bankers may be paid origination fees, something called Yield Spread Premiums (the lender pays this out of the yield of the loan and base it on the rate level you select, therefore you don't have to pay the broker directly reducing your out-of-pocket costs), and general fees such as processing fees applications. They shop for the loan for you. The lenders funding the loan will still have their fees as mentioned above. The lenders offer wholesale pricing to the "Broker" so the lender can reduce their general sales force and facility overhead.

Other, such as private investors and not relevant to this discussion and a minor source of funding.

So, what's the problem? Yield spread premiums are what allows a broker originator to offer the borrower a lower rate or pay some or even all of the loan closing costs out of the rate level they select. In fact most loans are closed that way and have been for many decades. Many if not a majority of borrowers (myself included) will select rates that utilize this benefit rather than having to bring points or fees to the closing table whether it's a refinance or even more important a purchase. That's especially true if they plan to pay it off in the first few years of the term. One point (1%) on a $200,000 loan would mean you would pay $2,000 at the closing table.

Another way our governing body wants to protect us! The administration wants to dump Yield Spread Premiums and change (another attempt at income limits) the way all loan originators are paid overall. If this is allowed to happen, you would not be able to get a zero point quote on a mortgage at a Par rate, so you would have to take a higher rate because the lender still has to offer it at a price that pays their sales person to originate the loan.

It's a clouded and vague attempt to make you believe your price is being bumped up somehow today, because you have the right to originate the loan without points. The lender can pay their originating employee directly. The broker cannot unless you pay points under the proposal. Without a Yield Spread Premium paid to them by the lender they won't get paid otherwise. The broker can pass the lower wholesale rate on to you, a retail lender usually won't offer it to you because they have overhead too. It's the advantage of the boutique effect. Without this additional broker pricing competition, bank rates would be higher without a doubt. They are now, even with the broker in competition. Take away the broker's lion share of the mortgage market supplying the only real competition today and limit it to what will is becoming a limited number of big banks and what do you think will happen? I've already seen it directly since I worked for many years for what was then the largest bank originator of conventional loans in the country in the 80's and 90's. They were also one of the higher priced lenders as well. But the accepted corporate rationale then was "national name recognition" has a "Price". If you reduce or limit competition the price will go up...I guarantee it. You think big business has a heart? The best we can hope for is that competition self-regulates pricing.

This administration also wants to set up an income stream for the industry based over time such as the insurance industry uses for residual income rather than a onetime payment to the originator on a closed-end transaction. That's a major misrepresentation by comparison since the insurance agent is able to maintain an ongoing yearly customer renewal relationship and fee that a mortgage originator simply doesn't realize. The problem was not the income, it was the laisez-faire government push to find ways to put more people in homes, and the subsequent land rush by the smartest folks in the room at the time to find ways to leverage the business by all players. Apparently the wink and nod by regulators wasn't effective?

Don't let them sneek another piece of legislation through that takes away your ability to get the most competitive price on a mortgage and your ability to choose where you get it. I don't care how a big organization like the ABA or its lobby may be or important their contributions are to the next election. I don't want my rights to stay in business or your rights to utitilize my services to be stolen in the middle of the night like this and they are on the verge. One more example.

Tell congress no. Tell Washington to stop their power grab and now!

Do you believe the banks will stand up for you? After all, look what a great job they are doing now on making credit available when their cost of funds is around 0 to.25%. They are passing the savings on to you right...? Take away all their nonbank competition and what kind of pricing can you hope to get? Ever try negotiating with a banker? I know, another Big Foot sighting. Have you looked at your bank credit card terms and credit limit reductions lately. They sure are helping you out there aren't they? Also check out what a great job the HVCC appraisal regulation change effective 5/1/09 has been (click Home page)...that was sarcasm. Much more of this help and we'll all be looking for employment.

Call your representative and say "NO" to H.R. 3126 before its too late.



Posted in:General
Posted by BILL WILBANKS on September 4th, 2009 2:13 PM


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