Two Senate bills have been introduced into the state legislature this session.
The first bill, SB 6381 (link opens a 2 page PDF) will change the state’s Mortgage Broker Practices Act to require that mortgage brokers owe fiduciary duties to consumers. In order to make fiduciary duties meaningful, they must be extended to include the loan originators that work under a mortgage broker. The legislature should make that crystal clear. Many LOs work out of branch offices and are unsupervised on a day to day basis by their broker, who may be located in a different office or in a different state.
[photopress:capital.jpg,thumb,alignleft]I recommend that the state legislature also include not only mortgage brokers but businesses licensed under the state’s consumer loan act. We must not forget that the two largest predatory lending lawsuits in the United States were settled with companies that were NOT mortgage brokers but consumer loan lenders: Household Finance and Ameriquest. If we do not make this change, unscrupulous mortgage brokers may just change the way they’re licensed. This loophole should be closed now.
The second bill, SB 6452 (link opens an 11 page document) also changes the state’s MBPA in an interesting way. At the bottom of page 3, this bill would remove a mortgage broker’s ability to quote a Yield Spread Premium range. Recall that brokers can see the wholesale cost of mortgage money, and elect to quote a higher interest rate to the consumer and earn the difference as profit. Sometimes, when a borrower wants a “no cost loan
I’m seeing less and less reason why a consumer would work with a bank LO if the banks are not held to the same standard as a LO who works for a Mortgage Broker.
Thanks for the information – it’s really interesting and I wholeheartedly agree with you. LO’s should definately take advantage of these bills instead of protesting them. The bills will set them apart from banks and make LO’s more attractive!
Obviously I’m not a loan officer, but,the difficulty is, how can loan officers know what the actual YSP will be until they lock the loan for their customer? They have an idea up front initially I suppose.
Jillayne,
A lot of GFE’s that I see only have the 0-3% indicated. Do most LO’s know about the RESPA thing (actual figures) or is it just sloppiness in transaction management if it does not show?
I just saw one yesterday (when I was review a GFE for a client who was “shopping”) with the same 0-3% for YSP and no dollar. I would assume the broker should quote what ever the going YSP would be at the time of the rate quote (just like quoting a rate)…but after reading your post, perhaps they should just quote a higher YSP and refund or do what ever they want at that time.
What a facinating time to be in the mortgage industry!
Here’s a question for you, Jillayne–or any one (and although I can broker, I do a majority of my loans with our correspondent relationships)–this is totally hypothetical:
Let’s say the going rate for a 30 year fixed is 5.25% and at zero points with the banks…
a mortgage broker can provide a 30 year fixed at 5.125% at zero points and they’re receiving 2% YSP
…should the consumer care what the broker is getting if the consumer is getting the better rate?
Hi Rhonda,
Yes, the consumer should care what the broker is getting because the consumer could have received an even lower rate if the Yield Spread Premium were applied to reduce the rate even further.
In fact, once consumers understand what YSP is and how to use it to lower their rate, they can make an informed decision about how to pay their LO and how much to pay their LO.
(Many mortgage brokers and LOs already do this, so the proposed changes will be a piece of cake for them.)
Now when comparing the broker’s Good Faith Estimate and Truth-in-Lending Reg Z form with the GFE and TIL from the bank’s LO, the consumer will be able to see the bank’s loan origination fee and the bank’s higher APR (since the note rate does not appear on the TIL form.)
Yes, consumers should care what their loan originator is making.
If consumers only shop by interest rate alone, the consumer will miss out on being able to negotiate a better rate and also lower settlement costs.
The government forms, when completed as intended, were designed to help the consumer shop for the best interest rate and the lowest fees.
Tim asks: “how can loan officers know what the actual YSP will be until they lock the loan for their customer? They have an idea up front initially I suppose.”
Many LOs have a standard range of Yield Spread Premium that they normally make per transaction. This can range from, say, 1 to 3%. So in this case, if a loan originator on average makes 1.5% of the loan amount in YSP, but when they lock the loan, their lender gave them an extra bonus point or they were able to lock the loan at a rate HIGHER than what the client COULD HAVE received, then on that day the loan originator knows he or she will be making 2.5%.
If the Loan Originator quoted 1 to 3% (and also the corresponding dollar amount range, which is required under RESPA) now the client has already seen the best (1%) and worst (3%) case scenarios and has had the opportunity to challenge the YSP and negotiate that fee downward.
Tim asks: “Do most LO’s know about the RESPA thing (actual figures)”
Answer: No.
We all have to understand that most of the loan originators who entered the industry during the past 7 to 9 years were given a laptop and a lead sheet and sales training on how to close leads, and that’s it.
I have now met hundreds of loan originators who have been originating for years and have never received any compliance training on state and federal law, ever.
I have to counter that by also adding that some mortgage brokers train their people really well. You will find these people at brokers with correspondent lines of credit, brokers with FHA approval, and medium to large sized, seasoned mortgage brokerage firms who have undergone a regulatory audit. Here you will likely find the LOs who do know RESPA and how to disclose their YSP on the GFE.
Jillayne:
How opportune and timely!
I was just reading WAMB’s proposed thumbs up and thumbs down list, which I mostly agree with, before going to Olympia. I was trying to sort out the areas of my disagreement (because I NEVER like to be told what to think) , and Googling for info, and your post came up.
What a strange world it is today! And, thank you, thank you, thank you!
There seems to be no other place to discuss this business on an ethical level, just a legal and financial level. That is not enough. However, if I don’t stay legal, and ignore finances, I’ll just be one of the unfortunate ones shouting from the sidelines (or worse!)
You said that this language was proposed.
“Any yield spread premium or equivalent compensation or gain paid between a mortgage broker and a lender prior to or after closing of a residential mortgage loan must be refunded directly to the borrower, if the amount of compensation is greater than the original good faith estimate provided under RCW 19.146.030.
I know it’s much harder to get a bill through when it has budget impact (rather than a straight rule/law change), but if this reform is going to make any difference at all it should have some $ tied to enforcement.
Hi laxtosnoco,
Do you mean more money that brokers and LOs would pay into their regulator’s fund for audits?
Roger, are you going to Olympia next week with WAMB?
Yeah, I am.
Are you?
Jillayne: “Do you mean more money that brokers and LOs would pay into their regulator’s fund for audits?”
Yup, or some other mechanism increase enforcement resources. It’s nice to add a requirement for better disclosures, but the results won’t matter much if LOs aren’t worried about getting fined or thrown in the slammer.
I’m planning on it. I think it will be interesting…I’m concerned about how the market may be next week and so if it’s too crazy, I may have to bail on it. We’ll see!
Since Rhonda and Roger got a good word in for WAMB advocacy day, how about a plug for: HOUSING & HOMELESSNESS ADVOCACY DAY – OLYMPIA FEBRUARY 14 2008.
I’m sure the turnout will be pathetic for the WAMB thing, I hope the one for the homeless goes better.
I don’t know about a plug for WAMB, I probably have a fair amount of disagreement with some of their positions, but they are the only group that represents my industry.
Seems to be more effective to go as a group, regardless. Somebody has to make the sacrifice of time and money to show them that at least some of us want to be part of the solution, and continue to operate in this business.
It sure won’t make me any richer: I’d be better off staying in my office making loans!
Roger, WAMB has come out AGAINST both these bills, which I predicted before I read their position statement.
I’m not so sure one could make the argument that their position is part of any solution.
But they do provide a four page explanation of why yield spread premiums should not be outlawed…..which is not being proposed by state legislators.
Hi laxtosnoco,
Sure, you can plug that event too. I found the website link:
https://www.regonline.com/builder/site/Default.aspx?eventid=171748
regarding comment 12 from laxtosnoco, yes you do make a good point. The regulators didn’t ask for an increase in funding from this bill. Instead, if they needed more money, they would likely ask for an increase in the licensing fees. That way, instead of taxpayers footing the bill for extra enforcement, the money would come from the industry in the form of higher annual renewal fees.
Of course we also need to follow that through to the end. When the cost of doing business increases, this cost is ultimately passed on to the consumer.
How come when people are loosing their shirts in the sub-prime market the government is still trying to increase taxes?
Hi Chris,
Well with these two bills, I don’t believe the legislature is being asked to increase taxes. I did notice that they are going to go forward and ask for 1.5 million dollars for non-profit agencies, like I blogged about here:
http://www.raincityguide.com/2008/01/13/what-if-non-profit-housing-associations-were-able-to-originate-mortgage-loans/
Purpose would be for “financial literacy programs in the schools” among other things. I guess we can never start teaching our middle schoolers about pay option arms early enough. /sarcasm off.
“I guess we can never start teaching our middle schoolers about pay option arms early enough. /sarcasm off.”
Jillayne, I’ve always thought it would be an exellent idea to teach credit and use of credit in schools. I don’t recall it being taught in my home-ec class. Real life stories and examples for kids before they wind up with credit card debt would be invaluable. Yes Mom and Dad should be teaching their kids…what if Mom and Dad don’t know and why not have the lesson come from many other angles. We all ready teach our kids sex-ed in schools…why not credit-ed?
Hi Rhonda,
I’ve thought about your question all day. Although we could go on and on about sex ed in the schools, instead let’s just focus on financial literacy.
On the one hand there could be an argument for teaching kids about how a loan amortizes and concepts about simple interest v. compound interest. I’m not sure this lesson would take hold in middle school. Maybe at the senior year in high school yet not all kids get all the way through high school.
I believe that in order to really help a student get to the next level, we need to meet the student where the student is and work from there.
I honestly do not know if students in high school have a strong motivational level to really get how mortgage lending works. We would have to take a poll of middle and high school teachers. Perhaps simple lesson plans could be worked into what they’re already teaching without the need for millions in tax dollars.
Social studies lessons on how cities and communities form and grow are already in the classroom. Students also have a chance to learn about how to run a business in high school. Many of these lessons are already in the curriculum. I’ve volunteered to work at Edmonds Woodway this coming Friday to listen to the seniors deliver their capstone project. Maybe I’ll have more to share after that event.
We could make the argument that it is in the best interest of the community to make sure all high school graduates understand how to do things like balance a checkbook, use credit (or how about NOT using credit), how saving money and investing money grows more money, and so forth. But these lessons also lean into the realm of teaching values in our schools. Different cultures have different views about money.
Why would we want to teach kids to think that someday they will become homeowners and owe thousands each month on a mortgage?
Many, many people would not agree with promoting the value of a heavy debt load to our kids. Let’s not let the conversation go too deep into all the benefits of homeownership like tax write offs and building equity. I think we’ve all heard them and I would hate to think that this would be added into the curriculum. Not every person will become a homeowner. Thinking the opposite is one of the reasons why we are living through the current mortgage crisis.
I believe that it is in the best interest of BUSINESS to invest the resources into teaching financial literacy to their customers. Banks have a vested interest in teaching those that use their credit cards and checking accounts how those tools work. Banks and lenders have a vested interest in teaching customers who borrow money how a loan amortizes.
Why should our tax dollars be spent to subsidize the profits of banks and lenders?
An example of a good, working public school/bank partnership is the Washington Mutual school savings program. Parent volunteers help the kids once a week by showing them how to fill out deposit slips and the kids get wamu schwag (like pencils and keychains) for depositing money each month.
I am not so sure that it is the taxpayer’s duty to teach all members of the community how to balance a checkbook and how to read their mortgage documents.
A classic dilemna!
Folks did NOT get into trouble with their mortgages because they could not add, subtract, multiply or divide with proficiency. Is wasn’t because they could not balance a checkbook, and it won’t matter if they can quote amortization tables from memory.
Most got into trouble because of their attitudes (values) about money: how much to save and invest, how much to spend, how much to make and how much to give away.
Those are value questions, not computational questions.
Is it appropriate for schools to be teaching values? Maybe yes, maybe no, but the horse has already left the barn. They are doing it now.
The measure will pass, because it is a “feel good, do something” measure. No real point in advocating against it.
Picture this:
Mortgage Guy to Representative:
We don’t want you spending any of our hard earned tax dollars educating our future customers about financial literacy.
Doesn’t sound to good.
I do agree that it is in the best interest of businesses to educate (dare I say train?) their customers to act in way most advantageous to the business. That can turn out well for some consumers, and poorly for others. Pay-day loans anyone??
Parents cannot (and generally do not) expect sex-ed alone will steer their kids clear of trouble, nor should we PARENTS expect much of this initiative to steer kids away from financial troubles.
We have to do our best to teach them ourselves.
Individuals in businesses MUST behave morally and ethically for any of this to change. I know I have tried mightily to educate my clients, with varying degrees of success. No real choice but to keep on doing it.
Hello Jillayne,
Your post of December 23rd 2007 was a thing of beauty!
At some cost to myself I put the following before you. You know the source.
The good want power but to weep barren tears,
The powerful goodness want; worse need for them.
The wise want love; and those who love want wisdom;
And all best things are thus confused to ill.
Sincerely, Chris
Jillayne:
“Is the bill removing the right to re-disclose? (I’m not too proud to ask…!)”.
Did you figure out the answer?
With luck, I will get to hear the author’s viewpoint.
Regarding making all mortgage brokers be fiduciaries:
Not so sure I support it (but I certainly do not oppose it), but an entirely different reason than most would think.
Why would I want to force all of my competitors (who do not act fiduciarily) to adopt the methods and attitudes that differentiate them from me?
All I want my competitors to do is obey the existing laws (WIDELY ignored in the field of advertisng, sadly). Quit passing new ones until you commit to enforcing the existing ones, I say. Let the market place sort it out.
Also, I’d like to hear your take on what a post- fiduciary loan environment would be like on a day to day basis. How much more paperwork would we be required to give, and retain, in order to be compliant?
I suspect it is more, not less.
Mortgages are math, Jillayne…and credit scoring (if you get into the modules) are too. It’s also life. Credit scoring goes beyond how a mortgage will impact a teen later in life. So what if they never have a mortgage…how about if they finance a car or something else. Should our kids at least have a good idea how amortization works?
I still think it would be very beneficial to teach some basics in school. Schools bring in crashed up cars to show kids why they shouldn’t drink booze and drive…sex ed, as I mentioned before… I’ll stick by my guns on recommending “credit ed”.
Roger, I do think that it’s part of a math problem and a common sense problem that some home owners who used stated income or subprime loans are now in trouble. You state an income to qualify for a home you don’t make enough money for…it simply does not equate. Same thing if you go full doc on a loan with a DTI of 55% (that’s pretax income) if you have no other income or no savings…if you can’t afford it, you shouldn’t buy it.
Parents should teach their kids economics and set good examples. It doesn’t always happen and even when it does, sometimes kids (especially teens–I have 3 teens) need to hear it from other sources.
Hi Rhonda,
So where would we fit this into the curriculum? You and I both have kids the same age and so both of us know what our kids are required to do right now. In a way, I can see how we might be able to fit loan amortizations it into an integrated math/social studies lesson. I can also see how we could fit the topic of “credit” into a home economics lesson.
At my daughter’s high school, I am honestly not sure if they’re offering a home ec class anymore (it was required in the 1970s for me) but they DO offer a class called “chef school” where they teach the kids how to cook. What’s more important; cooking lessons or credit lessons?
Maybe there IS room. BUT this class is an elective, not a requirement.
I still say that we might be able to just fit it into the existing curriculm but before I stand firm on that, I would want to hear what the teachers have to say about it.
Some lessons are better left as life lessons. You learn about credit when you get it and then see how long it takes to pay back the bank.
Rarely does an 18 year old get a $400,000. because their income wouldn’t support it. Usually a young adult practices first with car loans and loans for furniture and credit cards.
“Is the bill removing the right to re-disclose?”
Hi Roger,
No, existing law regarding re-disclosures is not changed.
Roger asks: “Why would I want to force all of my competitors (who do not act fiduciarily) to adopt the methods and attitudes that differentiate them from me?”
Remember, not all your competitors would be forced to do this. Banks, credit unions, and consumer loan lenders would not have a fiduciary requirement.
So in terms of all your BROKER competitors, the answer to your question is that an entire group is judged not by it’s best representatives but by the lowest common denominator.
A group will do better (economically) if the members of that group all works together to remove the behavior that results in negative consequences for their clients. This will require setting aside some degree of self interest to the benefit of the entire group.
You would have to want your competitor to improve (morally) just as much as you would want your own moral growth to improve. When I say moral I am meaning the way we interact with our clients, with each other, and the way we interact with the general public.
Nobody’s morally perfect, certainly not me. We all have room to improve.
Roger says: “All I want my competitors to do is obey the existing laws”
This will never happen. There will always be competitors who have already planned on ignoring state and federal law.
They look at the laws, they see how much money could be made by violating the laws, they estimate their chances of being caught, they calculate the potential fines and fees, and then maybe they even set that money aside, and they move forward with their plan.
If you want to see an example of that, read any recent news story about any title company or national home builder that recently settled with HUD for RESPA violations. This seems to be purely a business decision. The companies knew they were violating RESPA.
Our regulators never will have enough resources to police every broker’s every move. Government was never designed to do that.
Government was designed to go after the most egregious cases of law violations.
The rest is up to business and industry. It is up to us to help each other.
“Also, I’d like to hear your take on what a post- fiduciary loan environment would be like on a day to day basis.”
Roger, watch for the Ethical Lending Foundation monthly email. We have a couple of classes coming out that will help you understand. One of them is called “Informed Consent.”
Hi Chris,
Am I a rebellious revolutionary?
“Essentially, Prometheus Unbound, as re-wrought in Shelley’s hands, is a fiercely revolutionary text championing free will, goodness, hope and idealism in the face of oppression.” from wikipedia
After reading it for the 4th or 5th time (I’m a little slow some days) I think this bill does change the rules regarding redisclosure.
Currently, the law allows a broker to make (and keep) MORE on YSP than originally disclosed, so long as the change is given to the borrower at least 3 days before signing.
The bill eliminates the ability to make more on YSP by re-disclosing.
4) Any yield spread premium or equivalent compensation or gain paid between a mortgage broker and a lender prior to or after closing of a residential mortgage loan must be refunded directly to the borrower, if the amount of compensation is greater than the original good faith estimate provided under RCW 19.146.030.
In theory, a broker COULD charge more mortgage broker fees, so long as:
(a) the need to charge the fee was not reasonably foreseeable at the time the written disclosure
was provided
and
(b) the mortgage broker or loan originator on behalf
of a mortgage broker has provided to the borrower, no less than three business days prior to the signing of the loan closing documents, a clear written explanation of the fee and the reason for charging a fee exceeding that which was previously disclosed.
It will be very difficult to meet these tests for anything but 3rd party fees. It will no longer be legal to lowball the estimated charges or interest rate (and minimize the initial stated YSP), then make it up by redisclosing.
Sounds fine, really, but as you point out so delicately, there are those that have already decided to behave illegally.
So, what the law does is make it HARDER for those that are already complying with the law to compete with those that are currently, and predictably will continue, intentionally violating it
It all goes back to enforcement then, doesn’t it?
Since I cannot audit the records of those who cheat (only DFI can), how can we in the industry police the cheaters?
And what does it matter if we do? Despite being called out by DFI for illegally advertising and outrageously cheating the public, Linden Loans is still in business. It took 3 months of continual complaining to get the advertisers in the Seattle Times to stop saying “lowest rates”, which is clearly prohibited by state law. The ad still has numerous blatantly illegal figures and statements.
Frankly, I think the better approach is for the ethical lenders to band together, and differentiate themselves sufficiently, police their own membership, and watch the rest of the world come our way. This is slow progress, sure, but it is one of the attractions of ELF.
Making all brokers fiduciaries will only force the cheaters in the same bed as the ethical ones. You’ve already pointed out that government cannot enforce the laws it has written, and if we are forced to lie in the same bed as the cheaters, we cannot control them either, by excluding them from the ethical club.
I appreciate the invitation to the class. I already understand how to act ethically, I’m just trying to figure out how much to budget for CYA paperwork! 🙂
PS I am not getting any monthly emails from ELF. Maybe if I did, I wouldn’t have such a bleak outlook!:)
Good post, Jillayne.
We only work a part of the day, we’re citizens for the rest of our lives, and how business practices are regulated for the common good affect all of us.
I’m sure Roger will rethink the notion that a scrupulously-clean food vendor should object to higher sanitation standards for his fellow vendors simply because it would harm his competitive advantage.
I’m also sure there were some honest derivative packagers, too.
And by now, you would think that the free-marketeers would look around at the change in American world dominance since we decided that the Market should reign supreme.
Mack:
Good points, all of them, especially the reminder that we are citizens 24/7, and business people somewhat less. Great food analogy!
I’m not opposed to changing my mind or attitude, nor am I opposed to well-thought out reforms.
It’s the reforms passed with no thought to funding or enforcement that chap me…No-Child Left Behind, unfunded mandates, etc., that only serve as political cover and feel good measures. If there were not enough food inspectors, the sanitation laws would not matter very much, as each food vendor would weigh the risk reward ratio on their own values.
It is self-evident that existing laws in lending are infrequently enforced and widely ignored, and that “free-market” attitudes at the highest level of government and finances have led to that lack of enforcement. I am all for changing the attitudes (and government).
Came across a quote from FDR the other day…
“We have always known that heedless self-interest was bad morals; we know now that it is bad economics.
This isn’t a comment about the 2 new bills, although I do agree with them. I want to take a minute and ask you all to think about our society today.
What was your parents first house like? If you don’t know, call and ask them, they will be thrilled to hear from you!
My parents first home was bought in about 1960. I don’t know the price of it, but it was a 900 sq foot rambler in the Rose Hill area of Kirkland. They were a typical couple of the era, one car, dad was law student + working full time job driving trucks, mom didn’t work or have a car. Not on a bus line either.
When they bought that house, they had 3 kids, and by the time we moved, the 4th was a new baby. 1 bath, no family room, and a carport not a garage. I was about 9 when we moved, into a 1800 sq foot split-entry home with an unfinished basement in Kenmore. At no time did we feel ‘deprived’ or that we had ‘less’ than what we deserved. My mother didn’t drive until I was 10, now that one, I admit, drove me insane :-).
As our society has become richer, the expectation of what a “first home” should be like has gotten crazy. Somehow, we’ve got to scale back our lifestyle expectations, especially the lifestyle expectations that our first time buyers often have. There are a ton of very nice, older homes in areas that our buyers don’t want to live. They all want to live close-in, theoretically to save gas, time and transportation.
BUT, if you spend $50,000 or $100,000 more to own that close-in condo, you’ve saved nothing, and you’re certainly not “helping the planet” by creating the need for more massive condo construction close in.
Dollar for dollar the close-in new, new, new construction costs so much more than older and farther away. You want GREEN? Buy existing, not new.
Hello Jillayne
No Jillayne, I hope and believe, that you are a gradualist, and force for moderation.
My hands are too shakey, and this is probably not the correct forum for a long discussion of this nature. Again, I comend to you the preface to the poem under discssion.
Esentially, by this point in his life Shelley had become a gradualist who hoped (perhaps vainly) for modest reforms. The poem presents prometheus as the protagonist of this. His beauty is that he bears no ill will at all to those whom were currently exercising power.
From the preface: aware that untill the mind can love, and admire, and trust, and hope, and endure, reasoned principles of moral conduct are as seeds cast upon the highway of life which the unconscious traveler* tramples in to the dust, although they would bear the harvest of his(or her)* happiness.
*poetic licence
Sincerely, Chris Worsley
Common1Sense, my first house was 900 square feet in NE Tacoma. I wasn’t thrilled about how far away the home was from family in Renton and my office downtown Seattle…but I was to buy a home. We were FHA buyers and thrilled.
Most of the first time home buyers I talk to have much grander expectations than what we did. Starter homes are different now I guess.
Jillayne:
OK, you win 🙂
After gnawing on the bone of contention for a few days, I succumb to the demand that everybody get on board the decency train, I’ll just have to make room.
I’m going to save my gas and time, and phone in my support of the bills. The fiduciary responsibility needs to be extended to LO’s, else it’s meaningless.
Hey, maybe it could be EXCLUSIVE to LO’s! Even better!
Yes, I already thought that RESPA required full disclosure of YSP, and I thought that it does not matter if you are a broker or bank.
I am a private broker now, but I have worked for a large bank mortgage lender in the passed. I HATED that place there was more illegal activity that went on there than any other mortgage broker office I worked for. Then to top it off, I made less money at the bank and the consumer recieved an even worse mortgage rate. The investors were the only ones who made money and the consumer took a cleaning from the bank.
I don’t see anything wrong with being upfront and honest with my clients, and it should be a law that we are. All this does is prove that the only thing a bank is good for is a checking account. Maybe someday the Senate will pass the same standards onto the banks where it is really needed.
I agree that clients should know what they are paying for and the cost associated.
I think LO should have fiduciary responsibilities along with brokers. I think the incentive for brokers would be tighter controls surrounding business practice and make sure LO stay in compliance. I think disclosing YSP and refunding over compensation will require LO to make more accurate estimates of thier fees.
Jillayne:
The Senate has already passed the original Fiduciary bill (omitting any mention of loan originators).
If anyone agrees that loan originators should be held in fiduciary capacity, now is the time to contact your State Representative. Or contact them to oppose the bill, your choice, but it shot thru the Senate pretty quickly, and the informal vote at the PI is running 85% for the bill.
Get active, then get back to work I guess!
I totally agree with the first bill to change the state’s Mortgage Broker Practices Act to require that mortgage brokers/LO owe fiduciary duties to consumers. We want our customers to know that we work for them instead of lenders.
Regarding second bill, I am confident that MB/LO can quote dollar amount range instead of percent range as their YSPs so consumer can have a better understanding how and how much MB/LO get paid. And no problem we can refund the difference if the compensation is greater than the original quote. We are not cheating our customers to get higher gain.
I am not sure about removing a MB’s ability to quote a YSP range though. It is hard to estimate the exact YSP without locking INT Rate. Besides this will also eliminate the flexibility for consumer to choose a feasible way to pay closing cost and loan fees.
The bill does not remove your ability to receive YSP. You just cannot gain MORE YSP than your original quote.
You cannot estimate the exact YSP. Just estimate it, and move on. If the borrower gains, you’ve got a client that thinks you are great!
i think the bill will push more lo’s out of the business. all the bill will do is get rid of the “no closing cost fee” loans. we all know when a company says that they are working with the ysp for payment. i don’t see a problem disclosing a dollar amount of the ysp, in most cases clients know being a lo is a job and they have to make a living also. and don’t mind if the lo makes a reasonable ysp from the bank.
I agree with disclosure of YSP. Banks and brokers will never be on the same playing field. We can either use these new laws to be better resources for our clients or we can sit around and whine about it. Either way its coming and I think its what will set us apart from the banks.
Looks like the first bill in the wave has hit the shore. You can read the final here. It is generally about funding and mandating financial literacy.
The act is funded by $1.5M over 2 yrs.
http://apps.leg.wa.gov/documents/billdocs/2007-08/Pdf/Bills/Senate%20Passed%20Legislature/6272.PL.pdf
I think all brokers should be requires to have some sort compliance representation. We are so busy closing or looking for our next loans, that it can be difficult to completetly sty up to date with new disclosures or regulations. We depend on a compliance officer (independent) to keep us up to date.
This whole argument regarding disclosing YSP seems rediculous to me. We are the go between on the deals. Therefore, it does make sense for us to have to disclose. Banks don’t have to because they fund the loans and get paid in other ways. They pay a commision to their loan officers, but it is rarely in the exact same way we as brokers get paid.
Also, in California, there is a huge difference between the loan officers that are individually licensed through the dept. of real estate and those that are not. Loan officers are individually held responsible for their actions. I strongly believe that that should be the standard across the board. We are also required to do continuing education to stay current. Loan officers have to have their own skin in the game.
I agree completely with fully disclosing all costs to borrowers. I also believe that the broker should refund back any additional rebates to the borrower. This is in the best interest of the customer, the lender and the broker.
I, personally, rarely recommend a loan for a client with YSP unless their current situation warrants it (ex: they are refinancing out of an ARM but plan on selling or moving within the next year or two). This legislation makes sense.
I agree with the revised bill. I do think disclosing it makes it a fair playing field when going up against other good faith estimates from other brokers that typically don’t disclose properly.
I do not like the fact we have to disclose our YSP. Banks and correspondent leners do not have to and neither does the insurance industry or financial advisors. In my opinion, what is most important is that you are helping your clients, I for example am focused on helping my clients save or earn large amounts of money and from my perspective that is the most important issue.
For those who knew nothing about the complicance guidelines concerning GFE & TIL and who are going through re-licensing this is all good. I must say that being out of compliance does rest upon the mortgage broker. They are the companies conscience. If it has not been practiced it should be. Household and Beneficial are legallized criminals. I have had clients who had been given money from them that absolutely buried them financially. Sub-prime or not – there was not a thing we could do for them financially after that, they had to sell their home and thankfully it was in an area that the market was still moving. Regulate them strongly!!!! How do they do business and stay in compliance?
I will say it again, “We should have a fiduciary responsibility to our customers.” Everyone in the lending industry needs to realise that we have to not only grasp responsibility, but bring ourselves above the rest and hold the highest level of professionalism possible.
The YSP is no big deal. This could be solved by a RESPA form for the customers that explains the yield spread in detail.
Do borrowers get nervous when they see the money made by those in this industry “off them”? This disclosure,ysp, may make them feel they are paying too much and go elsewhere unless they are convinced all are the same. I think its great all is disclosed upfront, are we embarrassed or something? If I am a borrower and sense you had a fiduciary responsibility I would not feel so bad at what you made and would probably be motivated to join you!
Full disclosure. It’s part of the deal. Giving the client the best possible rate and term.
How about this as a professional attitude. Actually giving someone a mortgage you woud truly want for yourself.
I personally like YSP to help pay some of the borrowers closing cost. Particularly if it makes sense for the borrower to take a higher rate.
Par pricing for all. (-:
I believe in full disclosure of YSP the same as rates, if you are planning on receiving YSP let your clients know how much and be upfront an honest, they will respect you for that.
100% agree with the bill. The consumer is and should be entitled to full disclosure. While most homebuyers may not have a clue as to what the YSP is, we do have the responsibility to inform them of everything that is in the form, how the funds are allocated, how the entire loan process works. Fiduciary relationship. Full disclosure. all good.
There appears to be an amendment to the Rodney Tom’s bill (SB6452) that would require brokers to provide 2 sets of disclosures to the borrower, if the broker is earning ANY YSP, with the 2nd set of disclosures showing what the loan woold look like if there were NO YSP earned.
I’d prefer not to have more labor and confusion added to a laborious and confusing process, but it does serve to provide additional disclosure to the borrower.
I would contend that the original bill is sufficient, with full disclosure of YSP at the outset, and any additinal YSP at closing going to the borrower (in most cases).
Jillayne, do you read this the same way (section 3A)
http://apps.leg.wa.gov/documents/billdocs/2007-08/Pdf/Bills/Senate%20Bills/6452-S.pdf
Fiduciary duties to consumers by LO started the time they signed the application. At least that is what I understood it to be. Every single paper in the application and disclosures suggest the contractual obligation of both parties including mortgage brokers and LOs. Monetary liability to any wrong doing shoud deter some,if not most, from commiting such act.
As for the Second bill pertaining to disclosed monetary equivalence on YSP and elimination of range percentage, I also agree. The idea is full disclosure without exception for LOs and brokers. If the consumer trust you by giving you the business, then you shouldn’t be hiding behind a range percentage, disclose right away. You have three days to make an offer.
I think there needs to always be full disclosure, why are brokers getting mad about having to disclose all YSP? That is the honest and fair thing to do. Too bad so many dishonest brokers took advantage of the fact they could get away with charging borrowers extra and profiting from that. I actually used to work with a broker like that, his motto was if a customer asked questions try to skate around the answer until after they signed the papers. Wow! I didn’t stay there very long!
Jillayne, et al:
It’s encouraging to see all the new comments on your piece.
I’d like to encourage ALL of the commentators to write their 3 state representatives and 2 national reps(after reading and digesting the proposed legislation), to let them know of your interest and concerns (if any). It is easy, and empowering!
I’m not even suggeting that you parrot my opinions, WAMB’s NAMB’s or Jillayne’s (but you are welcome to if you wish)!
Just the fact that wholesale originators and brokers CARE enough to write will make an impact.
If you care about your paycheck, your clients, your future, and all the people that depend on you, take a few minutes to get involved in your government.
I promise you, they do NOT understand your point of view (I know from converstaions I have had with some). They hang out with bankers. Why?
Because that’s where the money is!! (according to Willy Sutton, famous bank robber).
Until we can turn the tide as a voting, working, taxpaying population that gets involved in government, they will continue to listen to the folks with the most money. And that probably is not you, dear readers!
That radical act alone will be impressive, and could turn the tide in the favor of the small guy or gal!
Harold, LOVED the story about the bank and FHA! I changed my business model just to be able to originate FHA, you might want to consider that as well.
The other day I had an experience I must share. A concerned consumer contacted. She had been referred and was seeking guidance on her recent ARM reset. She was feeling the pain and looking for a solution.
Quickly she began telling me the story of how she approached her bank for help. This bank is huge, national in scope. She went on to say that the LO has quoted her 7.00% w/ one point origination. My head almost exploded. I realize that everyone is entitled to price as they want but COME ON. I checked some published FHA rates and discovered the LO was looking for approx 3.875% in YSP. The loan amount is just shy of $300K, that is $14,500.00 +/- with the origination. She went on to say the LO indicated this was bank policy. This has to stop.
I quickly explained that currently I could not directly help her with FHA. Economics have taken their toll and I was short of the current net worth requirements. I warned her about others who claim to have access to FHA, only referring to a FHA lender for a fee. We all know this fee is not out of kindness of heart. It will show up in either rate or fee structure to the borrower. This was not the FHA intention, has our industry learned nothing!
Luckily I do know a FHA approved broker. I have handed the loan to her and she understands that I do not want a thing, not a Starbucks coffee card, NADA! She is not working for free but understands the $14,500.00 is WAY over the top.
It burns my backside that the banking lobby is now working diligently on changing the proposed FHA reform. The FHA has indicated that they will work with mortgage brokers who can post a $50,000.00 surety bond in lieu of the current $63,000.00 net worth. The lending lobby says that will not support the integrity of the FHA program. Wondey Why? I’m betting it’s not consumer-centric in nature.
This is becoming a frightening trend. Too often I hear of FHA lenders offering to take the file for a referral fee.
Whoops, I meant great story HOWARD!
Harold, you rock too, wherever you are!
I couldn’t agree with you more that brokers will have the advantage when explaining to their clients that they are upfront with all closing costs, unlike banks/consumer lenders- there’s nothing to hide and wouldn’t that client want to KNOW exactly what he or she is paying for that loan and service? In the end, this bill will only help to uphold the fiduciary responsibility we have to our clients- we need to act with honesty and integrity and by disclosing all the facts upfront, we’ll be doing just that.
I agree that both bills are good for the industry. I’m having issues with the disclosure process. Everytime the borrower makes a change we have to re-disclose that’s ok but giving an exact number on the GFE during the application process is silly. Couldn’t a broker just put up to 10k YSP on the GFE and explain its a requirement I have to disclose the max amount but don’t worry I wont charge you that I just have to put that in the GFE to be in Compliance? Its difficult competing with unethical brokers, I support all the new legislation. I don’t mind disclosing YSP exactly as I receive it what I am worried about are the limits they keep putting on YSP. How can we compete with that guy from countrywide who is always smiling telling us about countrywides no cost loan. The only way, as a broker we can offer a loan like that is to make yield spread.
Dave:
Welcome to the fray! It sounds like your opinions are roughly similar to WAMB’s, and I would bet many, if not most, loan originators and brokers on the wholesale side would agree with you.
I’ll take a crack at answering the previous question. DFI has already stated that a “range” of YSP numbers are not accdeptable, and they have told many audited mortgage broker to stop the practice. It is NOT allowed where I work.
Similarly, consistently grossly overstating the YSP, and telling a borrower that it is a fictitious number would be frowned on.
The best strategy I could recommend is to put the max amount that you expect you would earn at a particular rate, and then be happy to give any amount over that to the borrower.
This is essentially what the proposed state law says, and it is a fair way to do business. If the loan terms change substantially from the outset, a new disclosure should be sent, both to inform the borrower, and to protect YOU! the law does allow for that, but it requires a letter of explanation (i.e. the borrower decided to go from paying a point and all loan costs, to having the broker pay all loan costs, so the rate and YSP went up). So long as you do not substantially benefit from the changed terms (as in netting much more money), you should be OK with DFI.
Also, please take the time to let ALL of your representatives know about your business model and your concerns about the law.
It takes just a little time, and the consequences of NOT doing so could be dire.
I never thought of the possibility to use the change in legislature and LO practices as a way to differentiate ourselves from banks. That’s a really great point!
Also, I can see these bills from both points of view–a Loan Originator and someone seeking a home loan. I’m new to the industry, but also at the point in my life where I’m ready to purchase a home. From someone seeking a loan, I definitely would agree with the two bills. I would want everything disclosed and an increased amount of accountability for the LO, and I would like to know exactly what I would be paying in YSP, not just a range. Especially with a range like 1-3 percent. That’s a huge difference in price!
I can see the perspective of the loan originator, also, wanting to make as much money as possible, but I personally don’t believe in trying to gouge people. So, overall I would have to say, “Bring on the changes.”
The Fiduiciary bill was moderately marked up in the House, and looks like it’s headed for passage.
Thanks to Phoung Cat Le at the PI for keeping this in the news.
http://blog.seattlepi.nwsource.com/consumersmarts/archives/132983.asp
Main change is that brokers are not liable for not presenting options they do not have. Triple negative! Brokers ONLY have to present the products that they offer.
Since many brokers do not have FHA approval, I think this was a major liability that was removed.
If borrowers think they may benefit from an FHA loan (ie lower credit, higher LTV), they should ASK the LO/broker about it. The broker would have a fiduciary duty to be truthful, even if they did not originate FHA. I think we will see a LOT of brokers scramble to get FHA approved.
One more thing. LOs and brokers: Please, please, please, let your representives know that you exist. I don’t care if you advocate for or against ANY of the proposed laws, just let them know that you care, and you vote.
It’s the same with voting, folks. If only a small number do vote, it’s not really a democracy, is it?
http://apps.leg.wa.gov/documents/billdocs/2007-08/Pdf/Amendments/House/6381%20AMH%20IFCP%20H5840.1.pdf
Promise, it only takes a minute to read! Maybe 10 minutes to call or email your reps!
I think both bills will be great for the mortgage brokers, but what about the banks? Shouldn’t in all fairness, they be held to the same standards? I also agree with Jillayne that LOs working under mortgage brokers should be held accountable as well, but that will hopefully be taken care of on a self-regulated basis by their handling brokers (we can hope). Both of these bills seem to be a step in the right direction though for the industry as a whole.
I think both bills will be great for the mortgage brokers, but what about the banks? Shouldn’t in all fairness, they be held to the same standards? I also agree with Jillayne that LOs working under mortgage brokers should be held accountable as well, but that will hopefully be taken care of on a self-regulated basis by their handling brokers (we can hope). As more bills like this come to pass, hopefully the industry as a whole can start cleaning itself up.
I wholeheartedly agree with Jillayne that the loophole needs to be closed on consumer loan lenders licensed under the Consumer Loan Act. All brokers should have similar requirements to level the playing field, and to keep the consumer safe.
Both bills passing would be good for the industry. Even though banks won’t have the same rules yet, I believe a selling point to the customer would be differentiating our product from a bank’s product by letting them know exactly how and what we are paid for our services. Everything else is paid back to them. By informing customers what they are paying for, you will earn their trust and repeat business.
One of my attributes is that I love to beat the banks on interest rate. I fully support this bill because of your above mentioned reasons. I as a mortgage broker have the ability to 10 out of 10 times beat any major banks interest rate. I also have the ability to charge no origination fee and make YSP for someone looking for a shorter term investment. When practiced properly by either party we don’t get near section 32 loan fee limits. the bank actually tells us when we break these limits and won’t allow us to proceed with our borrower receiving that high of cost or rate. Every loan I’ve ever done has been different, what should differ is our fiduciary duties and responsibilities. I believe that should be an area of emphasis that isn’t being hit on enough (not in this class but as a whole for our profession).
These bills are good but I’m not sure how much of an edge they may give brokers over banks. It just seems from a consumer standpoint, banks regardless if held to a lower standard, will still be attractive to consumers simply for the locality, name and generic reputation. Banks are used more on a day to day basis for many purposes and so the convenience factor is there. The bills passed dont cross their minds, just impulsive in most cases and marketing. Needless to say, the bills will just make it an even playing for professionals.
I have no problem disclosing anything. I don’t mind following the rules, as long as I know what they are. It is difficult to disclose ysp when the rates change four times a day? When a Broker/LO originates a loan, a GFE is provided. In case someone does not know it, a GFE is an estimate of closing costs. What part of Estitmate don’t people understand. Once a loan is locked, which is mighty hard to do early in the loan these days, we are more able to know what the profits will be. Why is this a problem?
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I think this is a great opportunity for us to differentiate our advantages over a bank. We have several 30 year fixed rates to choose from and we all know that some borrowers will qualify for the better rates and some will not. This is where the education of the borrower comes in. I have been an originator for over 18 years and I do know my value. I have no problem with a borrower knowing what I make as I earn every penny! Realtors have been getting clients to sign an agreement with a 6 to 7% commission rate since the beginning of time. I don’t think my 1 to 1.5% YSP/origination fee combined is out of line. I provide alot of value to a client that they will not receive if they go to a bank. There is something to be said to work for a commission vs. working for a salary. Look at the motivation of government employees???? Where is the incentive to go the extra mile.