Proposed RESPA Reform

When I read the news on HUD’s proposed reform of the Real Estate Settlement and Procedures Act (RESPA) I was skeptical. Cathy from Sequim challenged me to read the 96-page federal register document so we could all figure out what’s going on. I am here to tell you that there is one very good change coming out of this proposal. In fact, it’s so good that I am borderline hopeful that this change might do what legislation is suppose to do and what HUD forgot to do when they signed the original version of RESPA in 1974. But first, the changes that will have many, but not all mortgage brokers screaming bloody murder:

HUD wants to make the Good Faith Estimate (GFE) look the same, no matter where homebuyers apply. Right now there are many off-the-shelf (OTS) software systems that make the GFE look different from company to company. Also, some OTS software can be modified. Some fees, for example, the Yield Spread Premium (YSP), are shown down at the bottom of the form, below the “total costs

About Jillayne Schlicke

Educator in the field of mortgage lending and real estate. Follow me on Google+

Comments

  1. Absolutely amazing Jillayne. Thank you for the short course because I could never have gotten past the first page without my eyes blurring. Plenty to keep up on as ususal. Thanks for the post. BTW, don’t the kids ever miss their mom???

  2. Jillayne, thanks for all of your hard, hard work on this — it was very informative. Regarding the lack of enforcement, there certainly seems to be no political will, either on the state level or federally, to pay for increased governmental enforcement. I wonder what will happen to that aspect in the coming months/years?

  3. Jillayne:

    I knew I could come here and get a level headed reading of the subject.

    Don’t know if I like the association of loan originators w/sociopaths. I guess you know some folks that I don’t, or it was one bad Friday:)

    My first concern on reading the new form on Friday was about the similar proposed form required by WA State. I’m 110% for disclosure, but duplicative (if not duplicitous) disclosures can harm borrowers, because it bombards them with paperwork, and they give up trying to understand the important features.

    It reminds of the scene in Amadeus, when Emperor Joseph II is trying to explain his critisism of Mozart’s masterpiece and finally can only offer “There’s simply too many notes”.

    Re YSP, I can already hear the crowing about how it’s going to better/easier for the LO at the banks or doing correspondent instead of brokered loans, since they don’t have to disclose the YSP.

    ComPLETEly agree about the enforcement of FHA originations.

    I’ll dig into the 96 pages later.

    Meanwhile, my head is still spinning from the tsunami of changes arriving daily in the past week.

  4. Jillayne:

    I’ll have to think of another homework assignment for you! :)

  5. Hi Jim Dub,

    Actually, I’ve raised my children to become sociopaths so that they wouldn’t have to bother with pesky emotional problems such as “missing me.” Parenting is much more efficient this way.

    /sarcasm off.

    This may be a sign that I’ve been spending too much time over at The Onion.
    :)

    Life is a work of art or perhaps a song. Working parents find their own patterns and rythm and somehow most everything gets done.

    Thanks for the compliment; glad to be of help.

    Your boys must be as big as my girls by now!

  6. Hi sfvre,

    You’re welcome. In the coming months/years, it is my opinion that the money needed to enforce the onslaught of new federal and state laws will come from increased fees levied on the practitioners.

    Banks, lenders, and brokers will all have to pay more in fees to their government regulators, will pay higher costs for internal compliance control measures, and will pay higher legal fees. All this will be passed on to the consumer in the form of higher consumer fees.

    This is ironic in that RESPA was created to help LOWER settlement costs to homebuyers and refinancing homeowners.

    We will all hold out hope that the invisible hand of the free market will guide competitors to compete on price.

    I have been saying for years now that if the industry wants government off their back, they must self-regulate: In the long run, it will save companies money.

  7. Hi Roger,

    I’m not so sure Correspondent lenders are going to be able to be treated like a bank this time around in regards to not disclosing their YSP to the consumer. From the way I’m reading the register, a correspondent lender is considered as a mortgage broker for the purposes of the proposed new rules.

    Click on the link for the federal register and do an acrobat keyword search on the term “correspondent” to read what I’m reading.

  8. Although lengthy paperwork is really annoying, I don’t think it’s the worst idea to have a universal GFE.

  9. Hi Louisville RE,

    Have you looked at the proposed 4-page GFE yet?

  10. J:

    Dang, you gave ME a homework assignment before I could give you one!

    Your kids growing up to be sociopathic LO’s give me the widdershins!

    I think the new GFE is an improvement (with exposure of neg am, prepay dollar amount and terms), but they may have gone overboard. Did you see the section where you can compare quotes from other lenders?

    It’s kind of like Microsoft Vista, they may have packed too many features in, and sucked up all the available RAM in the borrowers’ brains.

    I WAS pleased to see that borrowers that used the new GFE’s saw the benefit of lower low loan costs over lower rates, at least that’s how I read the report.

    I’ve been preaching that sermon for years!

    I’m going to work on the YSP thing, coming back soon!

  11. The YSP is a credit. It is not a secondary market transactional item and therefore goes into Block A, #2.

  12. Cathy R., Sequim, WA says:

    Thank you Jillayne for your insightful comments… I was only kidding about the homework assignment but the summary reviews might make good vacation reading…. no really you did a great job summarizing what is an initimidating document.
    Anyway, I don’t think I am a sociopath but one way around having to refund a YSP to the borrower at closing would be to overestimate the YSP on the initial Good Faith Estimate. I actually like it that everyone must use the same form and I believe we can all adapt to this even though the new GFE seems a bit wordy… reminds me of filling out tax returns.

  13. Jillayne:

    Did as you suggested. It certainly seems they intend to treat correspondent lenders the same, but it’s not as clear as to exactly how.

    Worthy of future studies. Meet me at the library for “homework club” ? :(

    You know, one could call you a policy wonk, and not insult you….:)

  14. I went through the script and can honestly say that I have always done closings hitting all these points.

    It will be very helpful to have the GFE when there are differences to explain. Escrow Officers are usualy at a loss without knowing what the Borrower has been told.

  15. How can you disclose YSP when you don’t know what it’s going to be until it’s locked?

    These changes will only result in higher fees to the borrower. Every broker that I’ve spoken too all say that they will increase fees because of the extra work having to be done by the LO and processors.

    This will make even less sense to the borrowers.

  16. Hi Jeff,

    You’re right. This has also been a problem for consumers as well. Inside the federal register are research findings that go on for pages and pages of consumer groups who have submitted research to HUD showing that time and time again, the YSP did not decrease the cost to the consumer but instead, YSP was used to increase the fees to the broker. Many of these groups were trying to get YSP re-defined as an “unearned fee” which would mean it YSP would have been classified as an illegal kickback under RESPA Sections 8 and/or Section 9. I believe brokers/LOs are lucky to still be earning ANY YSP at all.

    In terms of raising costs, that’s the NAMB party line.

    Competition translates into lower fees in a capitalist economy.

    Competition also means that often, (not always) the best and brightest have the opportunity to charge and earn higher fees.

    So getting back you your original example, a broker/LO could quote a higher YSP, and then when the loan is locked, if it’s lower, the difference goes back to the consumer.

    Yet the problem for that broker/LO is that the consumer can shop for a better deal and find another broker who is willing to quote LESS YSP and give the borrower the better rate.

    HUD’s new rules are allowing consumers to see exactly how much the broker/LO is making.

    Many brokers/LOs that I meet don’t have any problems at all with justifying their fees to their clients.

  17. Hi Nancy,

    That is really good to hear. I was shocked when I read the script, thinking closers would not be happy with having to read all that to the consumer. Whew!

  18. Jillayne,

    I’ve read some of the research findings. I stopped after I started thinking and realized that the subjects were asked to take part in research. Although it was random, it isn’t like they didn’t know they were taking part in research. Things people say are sometimes different than what they will actually do.

    If YSP is defined as an “unearned fee” the investors will find another way to pay the brokers. Is as simple as that. If anything should be done it should be to limit the amount of the YSP.

    Competition does result in lower fees in a perfect world. But as you know this isn’t a perfect world. As costs of everything seem to be going up so will our fees. The only way to offset those fees is the current system of YSP. Yes it gets abused, but the answer is not eliminating it. Just limit it.

    However, it won’t matter in the long run if we cannot earn YSP’s. We’ll be in the same boat as every other broker. It will raise the costs to the consumer even though there is competition, because most borrowers don’t/won’t shop and after sitting in someone’s office for an hour and coming out more confused, they don’t want to do it again.

    Justifying fees isn’t the problem. The borrower having enough money to pay those fees is.

    The bottom line is that the only way the consumers will be helped is if they shop. You can educate them all you want but that will not make the majority smarter borrowers. “You can lead a horse to water but you can’t make him drink.” I don’t believe that the majority of the borrowers shop and I don’t believe they will just because they’re told to.

    Unless you live in an upper class, highly educated market, many borrowers don’t have the understanding and don’t or won’t take the time to be educated and don’t have the money to pay higher fees.

    I could go on but I just realized how much I wrote….I think I’ll just go into development and let you guys worry about this.

  19. Jeff:

    Good comments.

    Lenders already limit YSP’s depending on the product, and loan variables. Some products are capped at lower YSP’s than others.

    Lenders only pay what they think the loan is worth, and then only enough to attract the loans they want, which seems like a decent definition of a functioning market.

  20. I haven’t read the 96 pages yet so if I’m misunderstanding something,I apologize. I read in another analysis that the entire YSP would have to be credited to the borrower. If this were true there won’t be loans with no points, only ones where points were charged and then the exact amount was credited back. As a broker, I have an incentive now to work hard to find my borrower a little bit better rate. Sometimes I may have a lender offering a special or I may be able to switch lenders if rates have gone down significantly since we locked. (try not to do too often to maintain lender relationships) When I, with my extra effort, achieve this I will pass half of the benefit to the client and use half to pay me for my time. If I have to pass all the benefit to the client, I have no direct financial incentive to spend this time. I most likely would still try to find the better rates as it’s good for long term repeat and referral business. However, does anybody really believe that teh “average” originator will bother?

  21. Jillayne:

    The fallacy of this is that lower YSP = Lower Rate. All brokers do not have the same YSP, nor are they compensated the same. I have seen plenty of situations where I know for fact I am making more money in YSP than a competitor, but I am still offering a better rate.

    The cost of the loan is the final interest rate and other fees, not the YSP. In my years in the business, I have rarely had a client question the YSP when disclosed because at the end of the day all that matter is what they are paying in terms of the final interest rate and fees. If what I am offering to them is the best deal being offered to them, my compensation is irrelevant to the transaction.

    It is impossible for a broker to gouge a consumer if that consumer is proactively shopping for a mortgage. If every decent broker would do a deal for 1-1.5% YSP, the one guy who is trying to make 3% in YSP will be priced out of the market in one phone call. It really is that simple.

    YSP disclosure does nothing but confuse consumers more. The FTC recently did a study too that concluded teh same thing. YSP is disclosed solely to disadvantage brokers and nothing more. The rate is the rate, regardless of what is going on in the back end between a broker and the wholesale lender. This isn’t rocket science.

    If I were a consumer, I wouldn’t care if my broker were making $20k in fees if after I called around my final interest rate is the lowest offered to me in a competitive market. I don’t care what Wal-Mart makes in profit on a pair of socks. I don’t care what my gas station is making in profit. I don’t care what any business is making in profit if they are offering me the best bang for my buck in a competitive market place.

    To say banks can’t disclose SRP because the loan is sold after closing is also bunk. My company is a correspondent and I know EXACTLY how much SRP I am going to make on every loan. Sure there may be instances where we might get a price hit or discover something after closing, but we know in 99% of the deals what the expected SRP will be. I have to know because that is the only way to lock a loan.

    If brokers have to disclose banks should too. At the end of the day though, I believe neither should have to. Keep it simple. Consumers don’t care and it doesn’t benefit them.

  22. I’m not sure if everybody is getting how the YSP will be disclosed. The YSP is disclosed as a credit to the borrower. If you overestimate the YSP you’ll just mislead the borrower into thinking their overall costs are lower than they actually are.

    Mortgage brokers who intend to keep the entire YSP will need to charge a fee equal to or greater than the YSP then credit the YSP against their charge.

  23. Diane is correct. I only have 3 real problems with doing things this way. 1) As I mentioned 2 comments up, in many cases, a broker has less incentive to spend time and effort to work out a better deal for their borrower after a rate and fee has been agreed to. I want the best for my borrower so I often guarantee them a certain rate and fee while still looking or letting the market get better. (and then splitting the benefit with them) If I have to spend time and effort which I cannot be paid for, I must allocate that time to getting other business instead of getting a potentially better deal for them
    2) This whole disclosure process will be extremely cumbersome, confusing to borrowers, and time consuming up to the point of locking the loan. You will be giving borrowers 4 numbers to keep track of with every rate quote.
    3) The obvious ridiculousness of bank employees not having to disclose.
    They were very creative in achieving some objectives, but this will fail miserably in the area of borrowers being less confused. The extra confusion from borrowers will only lead to more opportunities for unethical originators to mislead.

  24. Casey Camby says:

    If anything I think the proposed GFE looks more user friendly. With the color, big numbers, and Explinations we are adding professionalism back into the eyes of our clients. Expecially since it’s a Federal Form.

  25. In every aspect except the way that the YSP has to be done, I agree with Casey.

  26. (no disrespect meant personally to anyone)

    In some respects it’s consumer friendly but not user friendly. Going back to my earlier post, you can give the consumer all the information you want but that doesn’t make them educated. Do you really think they read the HUD booklet that you’re supposed to be delivering at application? For that matter, do you really think that the ARM borrower’s read the CHARMS booklet?

    About adding professionalism…..you can wear all the button down pinpoint oxfords and silk ties you want but if you don’t deliver on day 30 what you promised on day 1 then it doesn’t matter what format the GFE is…..personally I prefer jeans and flip flops.

    I’m not saying all brokers are saints but what this is boiling down to is the bankers against the brokers because brokers can deliver what the banks can’t. It’s a constant battle here. We are surrounded by banks. I can count 6 banks from my window as I sit here and type. It’s funny when the borrower will end up here even if they are paying higher closing costs because we can beat them every time in rate.

    We just hired a new processor. She processed for one of those banks. They sell all their loans to Wells Fargo and TB&W. You can bet that they don’t tell their borrower what they are making.

    I’ll get off my soap box now……I think I’ll go write a booklet and sell it on the internet.

  27. Interesting point, Jeff. Recently I had an old riding friend call my to discuss a pending refinance. She and her husband are well educated, intelligent and run a high tech biz. She is a technical writer. They can read and comprehend well. I would rate them far above most consumers and so NOT representative. They were working with a mortgage broker and asked me to review the deal.

    These folks were only looking for a lower interest rate. They are not subprime types. They like to shop on-line and so they selected a mortgage broker based on promised rate and the jazzy web site. They wanted another set of eyes on the figures.

    I reviewed the good faith estimate. It was clear that the broker did not understand how to quote title insurance in PA though we are regulated. The mortgage broker was firmly steering the borrowers to the broker’s preferred title agent and quoting higher fees than allowed.

    There was no disclosure of YSPs on the GFE – NONE.

    My friends were okay with the broker fee being charged even though it seemed high because they liked the rate they were being quoted.

    Bottom line…..after further discussion, I found that the mortgage broker was originating THREE mortgage for these folks, including two subordinate loans – none of which was disclosed in the GFE.

    The mortgage broker was picking up YSPs on all three mortgages.

    The promised interest rate wasn’t locked in.

    I explained the relationship between interest rates and YSP.

    My friends were shocked, had further discussions with the mortgage broker, cancelled the deal and are shopping with a more savvy perspective.

    The new GFE would have made these points and done so in a way that these folks could have easily understood.

    I like the new format even though I grasp that change is difficult.

  28. Diane,

    I just can’t stop….I’m addicted.

    First, I don’t resist change…I resist change that doesn’t make sense.

    Second, this example sounds like something we run into all the time.

    Because the online broker/lender never have to face their borrowers, they do all sorts of things that are unethical and illegal and even the smart borrower (in your case) doesn’t have any idea. If they hadn’t shopped then they wouldn’t have known until they were at the settlment table. Maybe not even then. (depends on how unethical the broker/lender is.) However, do you really think, that if the new proposed format had been in place, the online broker/lender wouldn’t have tried to pull the same thing? They were originating two other subordinate loans that the borrower didn’t even know of. The YSP wasn’t disclosed on those. Even with the new format, those brokers/lenders that are unethical will still be unethical.

    This also illustrates something else that HUD is trying to do….educate the borrower. In today’s market smart borrowers shop the “others” don’t. Sure, making the broker/lender use the new GFE gives the borrower more information. But will they understand it if it’s not explained to them. It doesn’t matter what the format is. HUD is saying use this format….they are not saying…explain it until the borrower until they understand it thoroughly. The smart borrower will ask questions “others” won’t. The unethical broker/lender depends on the “others”. They prey on them. The new format will not all of a sudden shine a light on what we already know. It will not educate the “other” borrower. Somehow everyone thinks that the new proposals will make everyone smart. – “Oh I get it now”

    It’s no different than that me going into a Coach outlet and buying $5000 in purses at outlet prices then reselling them on ebay at prices just below retail. People buy them and I make a lot of money. They don’t know how much I’m making…they don’t care. They’re rich and smart right They didn’t have to fight the crowds and they’ll have their purse in a couple of days. The people know that they can get them at a lower price at the outlet but they still buy them. Should I tell them how much I’m making?

    I could try and sell knock offs at high prices….that would be unethical. I could tell them they’re knock offs and sell them at a price lower than Coach outlet prices but I’ll still sell them because the “others” will buy them. They’ll look smart and rich right?

    Bottom Line: The proposal won’t matter much….it will just cost us alot of money to make the changes and it will cost the borrower alot of money to pay for those changes.

    Basically, HUD is just throwing crap at the wall to see what will stick.

    I won’t bother you guys anymore……….today.

  29. LOL Oh, what the hell, it’s a bloggo kinda morning. All great points, Jeff. The beauty of the HUD GFE/closingscript/HUD-1 proposal is that is creates a kind of transparent dance in which nothing can be hidden and the consumer – even those who are not savvy – will eventually hear the truth. We do have to presume that HUD will get the legislative relief they seek to increase enforcement and that lenders will be on their toes monitoring and policing transactions.

    It may not happen immediately, but I predict a short consumer learning curve aided by the media who will pounce on the program because the topic is still hot-hot-hot.

    I wouldn’t be surprised if the big old “bad” mortgage lending apparatus doesn’t have to pay for public service announcements aimed at consumers to help them understand the new guidelines.

    We’re walking into a transparent new competitive world hand in hand with the consumer on a level playing field.

    We’ll survive. We’ll make good livings. The cost of financing a home will go down. Economics law will prevail as it always does.

  30. Diane-

    “The cost of financing a home will go down.”

    What did you mean by this?

  31. The natural outcome of fair and free competition is usually a reduction in price.

  32. Diane:

    Glad you said usually.

    When competition entered the cable TV world, prices skyrocketed.

    Why?

    Because the initial quasi-monoply kept basic programming costs low, as the the programmers (ESPN, TNT, Disney) had no where else to go.

    As soon as there was a 2nd and 3rd bidder (Direct TV, and Echostar/dishNet), there was a competing delivery system, and the land based cable systems could no longer control the costs of programming (pay what I am asking, or I will not allow you to show ESPN to your customers).

    Pre competition, the cable companies could say to ESPN, “Fine, go dark, where will you show your programming and advertisng now.”

    Presently, I see the outcome of all of this legislation and regulation favoring those who can buy the most access to the legislators and regulators, which will be the largest and best financed organizations.

    It will result in less small mortgage businesses, less choice for the consumer, and higher costs, but eventually the smart consumer will figure out the best solution is still with the mortgage broker.

    We hear anecdotal reports all day long about how someone was cheated by a broker, who made all kinds of money. We have seen no recent reports showing how smart borrowers, connected to ethical mortgage brokers, saved millions of dollars.

    Since I personally know the latter does exist, I conclude there are 2 reasons the reports are not in the media;

    1. It does not fit the dominant paradigm established and promoted by the PR machines of the banks “the problem was all caused by greedy and unethical mortgage brokers”. Lord knows the media are too understaffed and too poorly educated about the industry to do independent research.

    2. NAMB either cannot get access to the necessary data or cannot afford the cost of funding a study to show that loans ARE cheaper thru mortgage brokers.

    The last study I know of that addressed that in significant size was the Georgetown study of 2001, showing that borrowers costs were on average 1.3% LESS thru brokers. Unfortunately, the study, while massive in scope, only looked at subprime loans.

    Most of the legislation and regulation seems to be geared to protecting the less educated and vulnerable borrower. When they were in the hands of the large lenders in the past, they did not fare so well.

  33. However, the incredible increased burden of the FNMA new appraisal requirements, and other ineffectual regulations will increase lender costs dramatically. This, the potential of a virtual elimination of mortgage brokers, and a decreased appetite on wall street for securitizing will greatly increase the cost of financing.
    If airlines had to explain their exact profit on each ticket sold, then you made them change this disclosure to the traveler every time their cost of gas for the plane changed, then you produced a regulation that the travel websites had to quote fares without knowing which airline the ticket would be purchased from, you would have an approximation of what will happen with the combination of the YSP portion of this GFE and the new FNMA “home valuation code of conduct” (to make this a more accurate parallel, you would also have to require the airlines to set up a large, completely independent division in order to investigate each and every complaint by every traveler that thought the airline was wrong in their price of gas on their flight) How low do you think airfares would go?

  34. No offense, but it’s just naive to think that this will result in any real transparency or competition. They’ve been trying to achieve that since the 70′s. Even if they understood what they were doing, I doubt they could achieve it. And, the reality is that they either don’t know, or more likely don’t care too much about what happens, only how they appear at this moment in the public eye.

  35. Very interesting comments and please don’t take my position as anti-mortgage broker. Hey, some of my favorite people are mortgage brokers. ;)

    The current version of the GFE requires disclosure of the YSP but the disclosure isn’t really in a form that is useful for consumers.

    Under the new disclosure you simply convert the YSP into a dollar figure and put it into the credit slot.

    Takes these numbers. Let’s say you have a loan amount of $100,000 and you are the mortgage broker and you want to earn $2,000 as a broker fee and let’s say the YSP is $2,500.

    broker fee charge $2000
    less credit of $2500

    The buyer gets a credit of $500 toward other closing costs.

    Let’s say you are a retail originator and you want to earn $2,000 as an origination fee.

    origination fee $2000

    no credit (boo hoo)

    Which deal do you think the consumer will select?

    It’s not a hard way to disclose, it’s just different.

  36. Rob: I’m sure we read the same gazzilion words in the RESPA reform proposal. I, for one, have NEVER seen a more thoroughly studied regulatory compliance move. HUD knows what they are doing on the GFE issue. Their ducks are in a row,

  37. I said I wouldn’t but here I go……..

    The way it is now…..I keep the $2500 YSP and don’t charge the borrower anything. No broker fee…..no cost. How is the prosposed way better?

  38. Jeff: So in the new way, your mortgage broker fee would be $2500 and the credit would be $2500 and the borrower won’t pay anything. Same bottom line….different disclosure.

  39. ……as far as being thoroughly studied regulatory compliance move…..I doubt that the people at HUD are anymore knowlegdeable than the brokers are who are on the front line and have to put in practice the regs and keep the borrower happy at the same time.

    Not to offend anyone but I doubt that they (HUD) can do anymore than quote regulations.

  40. Rob; That was a fun analogy!

    Diane: I don’t think you are anti mortgage broker. You probably work with a bunch that you think are great folks, fair deals, and see a few that look awful, and have to look away.

    You may see bank deals, but my sense is probably not so much, as they are in ABA type relationships, w/ inhouse title and escrow, and folks who work in that kind of sitch don’t spend much time bloggin!

    But I think you have fallen into the trap that the banks have set for us all, to wit “Bad deals are done thru brokers”.

    I’m NOT saying that there aren’t bad deals thru brokers, I just need to continue pressing the point that the DIRECT lenders were equally, and arguably MORE guilty of crankin out bad deals!

  41. Diane,

    See that’s what I’m talking about….over regulation just so HUD can justify their existence. Why tell the borrower “I’m going to charge you a broker fee of $2500….but I’m going to give it back” ??……when you can now say…”I’m not going to charge you anything”. It doesn’t do anything for the borrower but cause confusion. The “other” borrower (not the smart one) will go for my version even if you tell them the difference…It’s not different just takes more time to explain…..

    By the way, I’ll do that $100,000 for nothing and make $1000 YSP and charge the borrower nothing.

  42. Jeff: Did you read the RESPA reform background notes? They thoroughly studied the issue from every which way. They are fully prepared to defend their position. If you haven’t read the notes, I do suggest it even though it might make you sleepy. They’re better than a sleeping pill.

  43. Roger: We do more bank originated transactions than broker. My perspective is just old school because I was weaned on mortgage banking.

  44. Thanks for setting me straight, I guessed wrong.

    I agree with you, by the way. the new GFE will be fine. I am envisioning a whole slew of trainers getting ready to show LO’s how to game the form.

    I’ve no problem showing revenue, the borrowers I lose, I probably didn’t want anyways.

    The smart ones will stick with me.

  45. I agree totally, Roger.

  46. 1. I’ve read just about everything I can. I also read the FTC study. Didn’t they find just the opposite?

    2. The current way is just fine. HUD just needs the authority to enforce.

    3. You have drank the Kool-Aid. There’s no saving you now….hehe.
    (Just kidding)

    4. Wanna change the subject and talk about builders and their so called ABAs? That’s who’s ripping off the borrowers.

  47. Ok….someone just gave me a new take on the YSP disclosure. She interpreted it this way.

    $100,000 loan amount
    1.5 % Broker Fee
    .5% YSP

    Broker Fee – $1500
    YSP Credit – $ 500
    Broker makes $1000

    If that’s the case, you’d have to charge 2% Broker Fee in order to earn the $1500.

    As opposed to a retail banker only charging 1.5% Origination Fee to earn the $1500 plus they’ll earn their SRP without having to disclose it.

    Now which deal looks better assuming that this is correct?

    There’s no way this will get passed either way you look at it. HUD is trying an end run around Congress and will get themselves so tied up in lawsuits that they won’t be able to enforce. Back to the HUD drawing board!

  48. Jeff:

    What makes you assume that the YSP will be subtracted from the broker fee?

    I’m not seeing it that way.

    It seems to me that the borrower must AGREE to give the broker the YSP, or have it used towards closing costs.

    You could be right of course, i just don’t see what you are seeing.

  49. Page two of the proposed GFE

    1. Our service charge $_____________
    These charges are for the services we provide when we get and process this loan for you.

    2. Your credit or charge for the specific interest rate chosen (points) $____________________

    YOUR ADJUSTED ORIGINATION CHARGES $___________________

    Jeff is correct. The YSP, if there is one, is listed as a credit and deducted from the origination charges. If there is any money left over, it would go towards other costs.

  50. So how does this not hurt a broker and benefit the borrower?

    In the broker world the “Service Charge” will go up because the YSP has now been taken away. The borrower will get a par rate but they are going to pay for it out the wazzzoooo!

  51. You have to look at the first page of the GFE as it is the “shopping” page meant to equalize off offers. It contains the interest rate, terms and the adjusted origination charges. Consumers – most at least – will be looking at rate and bottom line costs. The new GFE points borrower to the bottom line and not to the other stuff and I think HUD has done a good job of it.

    In your example the bottom line charges would be the same but the broker’s rate would be better so the consumer should choose the broker deal, right?

  52. Not necessarily. Say I want to make $2k. Currently I charge the borrower $1k and make the other $1k in YSP. Everyone is happy.

    In the new world that rate makes me nothing. I have to increase the broker fee to $3k to make $2k. Ok…lower the rate to par and charge $2k. (borrower benefit…yeah!) But he goes next door to the bank and they charge him $1k and do not have to disclose SRP. Yes their rate is a little higher but the difference out of pocket is $1k. Alot of borrowers will go with the bank to save the $1k. Especially borrowers in lower income areas. (Banker benefit……Oh yeah did I forget to mention that the bank president gets a $100k bonus at the end of the year?)

    Now the banker benefits and the borrower loses because now his rate is higher. Yes, the smart borrower would have taken my deal, but the other borrower wouldn’t…..no amount of education is going to make that borrower see that the lower rate would benefit him more than the $1k cash in his pocket. The banker used the fact that he will make money on the backend in order to lower the cost to the borrower…..that’s how he’ll explain it. But in all reality the borrower will pay more over the life of the loan than the $1k he just saved and used as a down payment on a car….that decreased in value as soon as he pulled out of the lot ……and this summer pays $3.75 per gallon of gas to keep it running. See how the government says they going to save you money!!!!

    Just like everything any govt entity has ever done in the name of consumer protection, it ends up hurting the consumer. All you have is politicians wanting to make a name for themselves so they concoct some crazy idea….label it Consumer Protection and hand out Big Glasses of KOOLAID.

    I’ve had it….I quit and I’m going home for the day! I think I’ll start an Alpaca Farm.

    This proposal hurts small brokers, brokers in lower income, lower educated areas and any brokers that have to directly compete with bankers. This proposal WILL hurt borrowers in all areas

  53. Thanks Jeff and Diane.

    I will go back and re read it.

    In the meantime, Jeff, you obviously can write, so please start explaining this to your legislators, to HUD, and to anyone who you think will listen to you.

    Finally, I don’t believe this will apply to correspondent lenders, as they do not have to disclose YSP.

    Of course, if it benefits the broker that has correspondent lines, the BROKER may choose to price his correspondent lines higher (not passing the full benefit to the ORIGINATOR), who then cannot pass on the benefit to the borrower.

    In the end, if Jeff and Diane are right, the borrower will be the one that is hurt.

    If that is indeed the case, then I cannot support this change, or should it pass, I must find a broker that does not seek to benefit from the borrower’s (and loan originator’s) loss.

    Jillayne, what is your take on this?

  54. Jeff-

    In your example, couldn’t the cost difference be easily explained?

    For example:

    Option A: Save $1K upfront, but over X years you’ll end up paying X more.

    Option B: Pay extra $1K upfront, but you’ll save X amount over X years with a lower rate.

    How is this complicated?

  55. Hi Roger,

    My take on this is that brokers/LOs are in the same position of Realtors having to justify their commission for what it is they do.

    My take on this has not changed: Brokers/LOs have an opportunity to really show their value to the consumer. I hear over and over again that a broker’s value is having access to all these programs.

    So, your bluff has been called.

    If a broker/LO has value above and beyond what a bank can offer, then now’s the time to show us your hand.

    Quite frankly, the world is getting tired of brokers/LOs whining about YSP.

    Stop being babies, grow up and show us your worth.

    Look at the fiduciary model. Brokers/LOs become way more valuable to a consumer as fiduciaries. Banks would not have such duties to consumers. But this means brokers and LOs would have to grow up and take on additional responsibilities in order to earn that fee.

  56. I predict that all eyes – including media and consumers will be on the broker response to the GFE. I was impressed by Joe Falk on RESPA Radio today in that he gets the GFE from the consumer perspective and that’s important. You can argue all day and night about whether you think it’s fair from an insider’s view, but in the end it’s really the consumer’s view that matters.

    This may be an interesting public display, a separation of the professional class of mortgage brokers from the predator class.

    What I really love is that we can all thrash out issues and think through the rules without having to take marching orders from trade groups.

    The blogosphere is such a free thought platform.

  57. “This may be an interesting public display, a separation of the professional class of mortgage brokers from the predator class”

    All the LOs that I have met who I would put in the pro catagory aren’t whining about YSP or the new GFE. They’re taking their time to learn the facts, they can see how to survive and thrive, and they go back to work doing what it is they do best.

    I would like to meet you someday, Diane. Will you be attending RE Connect in San Fran this summer?

  58. Thanks, Jillayne. I’d like to meet you someday, too. It’s unlikely that I’ll be in San Fran but if I am, I’ll let you know. I have this Radical tendency to only go to industry gatherings when I think an “in person” response is needed. [It's rare so it usually invokes an "oh **it" from the organizers.] LOL. Otherwise, I tend to hang in Ligonier. ;)

  59. Jillayne:

    My question should have been more specific. While one could interpret my comments as whining, I intended it as an attempt to understand whether Jeff’s interpretation of the rules was correct, and if so, how to best benefit my clients (and myself) according to that interpretation.

    Perhaps your wrath is directed at brokers/LO’s in general, but since it was my name at the heading, I would like to set the record straight.

    I am not whining. I have no problem with complete disclosure of whatever revenue is derived from the loan. I think the new form seeks to assist in that regard, and is a HUGE improvement on what currently exists.

    I really don’t care much about whether banks have to disclose or not, (and that brokers do) so long as I am able to find my clients better loan terms than the banks are willing to offer retail.

    So, I am very willing to offer the benefit of doubt, and interpret it as directed at LO’s in general.

    So, allow me to restate the question more clearly. Jeff, in comment #47 states:

    “$100,000 loan amount
    1.5 % Broker Fee
    .5% YSP

    Broker Fee – $1500
    YSP Credit – $ 500
    Broker makes $1000

    If that’s the case, you’d have to charge 2% Broker Fee in order to earn the $1500.”

    I think Jeff’s assumptions are incorrect (and Diane’s endorsement of his assumptions) . I was seeking your (Jillayne’s) opinion on the assumptions. Whenever I sense a mis-statement of fact in these (or other) venues, I do try to get it clarified from an expert.

    I considered that this might be construed as lazy on my part, so I re-read the document. Beginning on page 65, there are instructions for completing the GFE.

    The way I read it, the presence of YSP does NOT reduce broker compensation. However, it is an explicit assumption that the YSP belongs to the BORROWER, not the broker. (I have no problem with that concept either).

    So to rephrase Jeff’s math:

    $100,000 loan amount
    1.5 % Broker Fee
    .5% YSP

    Broker Fee + $1500
    YSP Credit – $ 500
    Your (the borrower’s) adjusted Origination Charges=$1,000

    The broker still makes $1,500 (and NOT $2,000, or $1,000).

    Do you agree with my interpretation of the numbers?

    It also seems there may be a period where the actual document and related processes could be influenced by comments and industry concerns. I may be accused of naivete, as perhaps this is a completely done deal, and the request for comments an empty show. I prefer not to be that cynical. Since the document itself contains several requests for input, it seems plausible that they actually do want the input.

    Thanks (in advance) for setting it all straight!

  60. Roger: I don’t mean to draw eyes from this thread and I cannot link to documents here so I’ll just mention that I have a broker GFE posted on Radical if you want to take a look at the math.

  61. Diane

    Thanks!

    Your illustration(s) seem to prove my points.

  62. I disagree, Roger. Look at the GFE again.

    If the total origination charge is $1500 and the YSP is $500, the originator will only earn a net of $1000.

    The example in the BROKER GFE on Radical has an origination charge which has been clearly adjusted to include the YSP. The origination charge on that deal included a broker fees and lender fees. You have to add that all together then deduct a YSP or add discount points. In the example the origination charge is $4143.86. After the borrower receives a credit of $1579.86 for the YSP, the net originaton charge is $2564.00.

  63. Diane:

    I still respectfully disagree about Jeff’s interpretation, but I suspect you and I are otherwise largely in agreement.

    The instructions are that any YSP earned must be included in the line item named

    1. Our Service Charge

    Jeff assumes that the broker only nets $1,000, despite charging 1.5% ($1,500) and earning .5% ($500) in YSP.

    The correct statement of that scenario should have been:

    1. Our Service Charge=$2,000 (inclusive of the YSP)
    and the broker’s net is $1,500 (his original 1.5% fee), while crediting back to the borrower the $500 YSP (which HUD now declares to solely belong to the borrowers). The borrower MAY use the YSP credits to pay loan costs both from the originator or third parties. The original mistake was to NOT include the YSP in line 1.

    So let’s look at another scenario, and see if you agree, in this case, a “no points” loan.

    $100,000 Loan
    No points (all revenue to be earned from YSP, including processing fees)
    YSP =2.5% or $2,500

    1. Our Service Charge=$2,500 (inclusive of the YSP)

    2. (b) Borrower Credit=$2,500

    Adjusted Origination Charges=$0

    I freely admit I could be wrong, but I am certainly seeking to get it right, and have not found another venue that is seriously discussing this. I did find Jillayne’s comments peppered thoughout the web! :)

    Does anyone know if HUD has a FAQ or additional sample GFE’s regarding this and other questions?

    Also, I am trying to figure out if HUD considers the lender’s (not the brokers) underwriting charge to be a 3rd party cost (falling under #3), or an origination charge. Could not find a reference to it in the HUD publication.

    That cost does NOT inure to the benefit of the originator or the broker, but goes to the bank the loan is placed with, so it seems to me to be a 3rd party provider that the broker selects (with accompanying zero tolerance).

    Finally, Diane, have you looked into the implications of the GMP’s in the proposed reform (lenders and brokers offering a package of services, and presumably driving down the costs of 3rd party services), and how it might affect the title business?

    Also, has anyone noticed that there is no net figure for “cash to close”? Does this require another form?

  64. Roger. You and I absolutely agree on the YSP. YEAH!!

    On the other issues. Here’s the way I am reading it and what I am hearing being discussed out there.

    The origination charge includes ALL broke and lender fees. In the example I posted on Radical. The broker had charged processing, broker and had a YSP. The lender charged underwriting and doc prep. All of that was added into the origination charge.

    The purpose of this type of disclosure is so that the consumer compares apples to apples. HUD wants to give them a total figure to look at.

    Packing is gone – totally. In it’s place HUD is allowing volume discounts but only if the discount is entirely given to the consumer directly. Also, the “safe harbor” anticipated for packaging is gone. Everyone stays on the same level playing field there.

    Yes, the lack of a summary shopping cash to close has been noticed. These are the important final details that we all need to mention in our comments. I play to suggest a simple addition ot he GFE that sumarizes cash to close with a place for hand money and seller assist, etc.

    Your comment here is the best I have encountered on the new rules. Roger – I think you’ve got your arms around this one. It’s really not bad, just different. ;)

  65. If it sounds like I’m whining, maybe I am…..however we already do almost everything HUD has proposed including a contract with the borrower for our fees. (YSP,Broker Fee, processing fee) If they think they need to change the format then fine. But how can anyone honestly say that this will end up with the consumer saving money. Did you see the figures for the technological changes alone? Who’s going to pay for that?

    By the way, the example I set forth above was an interpretation from a colleague. I agree with with how Roger and Diane intepret it….I just don’t agree with the YSP going to the borrower.

    Jillayne – I’ve been a Correspondent Lender – Tell me how their SRP is any different than the Broker’s YSP. Why should a Broker have a fudiciary responsibility and the Banker not? Why shouldn’t a broker’s fees be higher? Just wondering.

    Oh and another thing…..I’m sure there’s been small broker businesses go out of business. A few here but not the ones that have been in business for a while. But look at all the lenders falling like flies…..or taking big hits. Look at Bear Stearns. I don’t think the brokers are the ones that put them in this situation. Brokers didn’t invent Subprime, mortgage bonds, or pay their CEO’s hundreds of thousands in bonus’s.

    If HUD wants to let the Banks continue to take steroids and ban them from the Broker League….then I guess I’m just wasting my breath.

  66. Thanks Diane. Glad we settled that!

    I now return to the invitation from Jillayne to defend my existence and value, and by proxy, the value of other ethical LO’s.

    Let’s start with the obvious.

    1. We help people complete home loans they cannot complete without someone’s assistance (loan originator, loan officer, bank employee, processor, etc.) I believe I do so competently, and the majority of the wholesale LO’s I know do so as well. Even if we did so at the identical terms and net cost of a retail lender, we will have proved our intrinsic worth, as someone needs to provide that assistance.

    2. As the lending world exists today, we generally cannot compete with the more heavily promoted (brand name) lenders (primarily retail lenders), UNLESS we offer some additional significant advantage in service or price. The RESPA proposed rule explicitly acknowledges the advantages that mortgage brokers provide to consumers, and states that it seeks to preserve the consumer’s choices and advantages from the wholesale channel.

    I know that I DO offer significant price and service advantages to my clients, and believe, as a whole, the wholesale channel does as well. I could not remain in business if I did not (though I suppose there are others that could). I have to prove it every time I do win the right to complete someone’s loan, as do most originators in wholesale and retail. I only wish I could produce an aggregate study to prove my case.

    HUD’s stated goal is to drive down the costs of borrowing for the consumer, and especially the costs for the less sophisticated borrowers, who are most likely taking the brunt of overcharging and excess fees. HUD estimates these changes will result in a loss of revenue to originators (brokers AND lenders/banks) of about 14% (pg 73), and a 10% loss of revenue to 3rd party providers.

    Since all of the above are smart business groups, I predict they will find a way to recover those losses, rather than eat them. The most likely aggregate result will be slightly higher costs to the smartest shoppers (who already get the best deals), and slightly lower costs for the least sophisticated shoppers, with overall costs decreasing.

    That’s good, unless you are the one taking a 10% to 14% pay cut, (and are facing increasing costs of living). But, fortunately, it never actually works out that way. Those that were previously taking excess revenue from a loan (presumably by taking advantage of a less sophisticated borrower) will most likely be taking a bigger paycut than those that were taking more modest revenue.

    Now, I am wondering: Since HUD provides these significant estimates, they must know a thing or two about origination costs, and where they are higher, and where they are lower. Possibly, they have published such data?

    Off I go….

    Oh yeah, Diane…Jillayne and I posit that the YSP disclosure rules may apply to correspondent lenders (#7 and #13). You seem to have read the bugger a few times yourself, what do you think?

  67. I also believe that YSP would apply to correspondent lenders but it’s an issue that has to be nailed one way or the other. I’m thinking that clarification of “intermediary” and the origination services that would trigger a party acting as a broker such as delegated underwriting.

    BTW – I do believe that the GFE is mainly about creating a better way to shop and whether that ultimately lowers costs to the consumer no one knows. I think it’s a fair assumption that with offers clearly showing apple to apple comparisons, economic law will prevail and competition that benefits the consumer will find winners in providers.

    The market benefit a traditional mortgage broker brings to the table is to reach out to consumers in ways that lender cannot. Professional mortgage brokers such as yourself and Jeff will have no problem – in my opinion – fairly competing and I wouldn’t expect any big changes in your earnings. The predator mortgage brokers on the other hand will likely have to leave the playing field because their pricing tactics won’t work. In this sense the new GFE provides a benefit to the mortgage broker community by forcing out of the market those that give the business a bad name. ;)

  68. Jeff:

    Welcome back!

    The beauty of America is that we generally get to decide where, and what, we want to be.

    Currently, it seems that you and I choose to act as loan originators for mortgage brokers (at least I think that’s how you operate… I do).

    We could, with minimal effort, choose to become loan originators at a bank, with it’s attendant limitations and benefits. We could also choose, with some additional effort and capital, to become mortgage brokers/originators/correspondent bankers. Or, with considerably more effort, we could choose to be Masters of Wall Street.

    But, we have evidently chosen to be what we currently are, for presumably very good reasons, as we are both rational, literate, and share an above average commitment to our chosen path, as evidenced by our writings.

    Now, someone or something is moving our cheese. Maybe everybody is moving our cheese. It’s not quite random, but it is a little maddening.

    I, like you, prefer my cheese unmoved, and will happily argue with the cheesemasters to put it where it should be, but we do not control the cheesemasters.

    As long as we both recognize there is no dire shortage of cheese (oh, there IS less, to be sure!), nor any wish to hoard all of the cheese, together, we may be able to figure out where it will be tomorrow, and continue to do what good we can still do with our time here on earth.

    Hang in there!

  69. Roger,

    You’re right! We choose what we want to be and have to make the best of it….it’s just how the cheese bounces….hehe.

    To be sure, we will survive along with other professional brokers but I don’t think that the predators will go away. They may lurk in the shadows for a while but the rats always find a way to get some cheese.

  70. It’s been interesting observing the conversation from a distance (well, my pocket PC) as I’ve been distracted with other matters over the past several days.

    All these comments are good dialogue. Perhaps I will forward the entire thread on to HUD.

    To answer the questions posed, my interpretation matches Diane’s.

    Roger, I believe correspondents will have to disclose their YSP based on the language in the federal register.

    Jeff, I’m wondering if RESPA reform will once again get shuffled around and ultimately dropped now that Jackson has resigned. What do you think?

    Roger, thanks for giving me the benefit of the doubt up there inside comment 59.

    All, I will prepare a new post that will help us understand why brokers have to disclose their yield and banks don’t.

    Stay tuned.

  71. Thanks Jillayne:

    Relieved to hear you did not suddenly join the cast of Grey’s Anatomy!

    Sending this thread to HUD would be instructive and useful to them.

    I was unable to find much useful discussion of these matters elsewhere on the web, and it appears many otherwise intelligent people are mightily confused and upset by all of this. I know my head was aching as I was trying to slog through it all.

    Will HUD freeze up with the departure of Jackson? Doesn’t seem so, it has it’s own peculiar momentum.

    The announcement of a plan to reorganize the regulation of the financial markets seems to have sucked up all of the available hype in the media, at least for today.

  72. Jillayne,

    I believed from the beginning that the HUD proposal was a wish list and put out there to see what would stick. We don’t know what will happen until after they review all the comments from all of the different organizations that have the power to influence the outcome.
    I think the Jackson resignation will slow down the process a bit but I think that the HUD proposal is defective in that it doesn’t take into consideration the other regulations and other laws.

    I think that it will be on the back burner until the Presidents/Republican/Paulson proposal of combining and reorganizing is looked at in depth.

    Don’t forget that this is an election year. Now that Jackson is gone and a new president will be elected, I don’t think much if anything will be done until next year.

    Ultimately, I think the outcome will include some of the items that HUD has proposed.

  73. I agree with Jillayne about Mtg Brokers offering a service above and beyond banks. Where is the talk about a level playing field? How can a consumer “honestly” compare apples-to-apples when banks and Mtg Bankers don’t have to show how much they are making on the back end of the deal? Recently on CNBC a Wells Fargo executive stated, “mortgage brokers were a large part of the subprime mess.” Being a Mtg Broker I said to myself, “wait a minute who’s underwriter signed off on that loan?” I think it’s corporate America (large banks) that are pushing HUD to make these changes.
    The WF exec also stated that states that HAVE licensed LO’s had a higher ratio of loans fail (I think that was a stab at CA). Why isn’t every LO licensed, whether they work for a Mtg Broker or a Bank/Banker? Let’s level the playing field across the board, so the consumer CAN make an objective decision. Thank you for letting me add to this discussion.

  74. Don’t expect the resignation of Secretary Jackson to slow this process up one bit. It’s overdue. It’s well thought out – not a wish list. It has a momentum of its own because consumers need a better way to shop for a mortgage.

    I believe the goal is to help the consumer without causing undue harm to providers. In that way, HUD adjusted their treatment of lender to broker fees so that the consumer focus is squarely on the consumer’s bottom line and not the broker’s bottom line.

    HUD wants consumers to understand the seesaw effect of interest rate versus discounts and premiums. They’ve really been forced into this by the proliferationn of the unfortunate myth embraced by the consuming public that mortgage brokers were working on behalf of the consumer and getting them the best deal. While some brokers may do this, most would argue that their role is more that of a retail mortgage store.

    It’s easier to focus the consumer on pricing options than attempting to dispel this myth in any effective way that would in the end serve to benefit the greatest number of consumers.

    I like the way HUD has framed the pricing comparisons. They have in no way attempted to disparage the role of a mortgage broker or elevated the role of a mortgage lender. All are loan originators and all GFEs focus the eyes of the consumer on page one and the bottom line.

    PS – I agree with Roger. I haven’t been able to find any really good conversations on RESPA anywhere else though Matt Carter is giving it a good go at Inman. Nice job, Jillayne.

  75. Maybe this is a good place to talk about buyers agent rebate checks. I have always wondered how lenders feel about these checks after closing.

    Of course it is totally acceptable for a seller or an agent to pay buyers allowable closing costs at closing, and these are shown on the HUD Settlement statement.

    And, if a buyer has a rather large down payment, I’m sure the lender wouldn’t care about an agent rebate check to a buyer.

    But, we’ve never been able to have a seller give buyer cash/checks ‘outside’ of closing without disclosure (and then it becomes a concession against sales price and likely result is that loan amount goes down).

    Are the buyer agent rebate checks perhaps just such a new phenomena that underwriters are not aware that they happen? Shouldn’t these be a line item on the HUD?

    And my bigger question is, as a listing agent, I worry that my sellers offer may have a problem closing if underwriters start noticing/asking for disclosure regarding buyers agent rebates.

    I think it’s something to discuss …

  76. I’m gonna guess that mortgage lenders and HUD aren’t aware of the practice. I wasn’t aware of it, but perhaps it’s not taking place in my market.

    Any money changing hands in a real property transaction “outside of closing” which is not noted on the HUD-1 form is likely to be considered mortgage fraud and criminal if found out in an audit.

    Jillayne, what’s your take?

  77. Leanne,

    We’ve discussed that before. It’s very, very simple. The lender must approve all monies passing to or through the buyer, whether it comes from their family or their agent.

    If the price is $500,000 and the credit is $10,000 and the lender only allows $8,000 then the price becomes $498,000. That simple.

    Most lenders allow up to 3% and many as much as 6% and sometimes on occasion nothing depending on what the credit is for and the particulars of the borrower.

    But in all cases there is a way to reduce the purchase price, if the credit exceeds the amount permitted by the lender.

    The issue is that it must be disclosed to the lender, and taken off the price if the lender doesn’t allow the credit. Each case will be different in that regard.

  78. My question to lenders is, are you being disclosed to that there sometimes is a rebate check coming to buyers after closing from their agents?

    I think not in most cases, and that’s the big question. And reducing the purchae price is a very easy solution, but would the buyers who’d prefer the cash agree?

    What about a transaction where buyer has essentially their 3% down payment, seller pays all allowable closing costs, and buyer really wants that rebate check after closing. Currently, it’s my guess that the lender doesn’t even know there will be a rebate check coming to buyer after closing.

    Lenders, any thoughts?

  79. The buyer can’t take the cash and the real estate agent can’t give the cash without defrauding the mortgage lender. It’s a criminal act and I suggest you pass the work to cease and desist. Not trying to be mean or anything but these folks don’t understand that they are acting outside of the law and frankly the FBI won’t care. It’s more likely that the FBI would think the real estate agent SHOULD have know and will still suffer the consequences.

  80. Hi All,

    Rebate checks coming from agent commissions have been going on for decades. I have been told that our state attorney general has already taken a position on this. Businesses are free to use any business model in order to sell their goods or services, obviously, provided what they are doing is within the bounds of the law. So for example, builders offering wild concessions such as a new car must disclose these concessions to all parties. Realize that the home must also appraise for the sales price.

    RESPA was created for many reasons but mainly to help control the cost of settlement services, and therefore help make housing more affordable. RESPA was not intended to limit competition amongst real estate brokers and their selected business models.

    Let’s talk about how this could be mis-used. For example, a SELLER kickback. Seller commission paid to agent: 13%, and then after closing, 7% of it is given to the buyer, a disguised seller concession which would need to be disclosed to the lender.

    Next example: If a buyer were using his or her agent rebate to pay for part of the settlement costs, this would show as credit on the HUD I.

    The GFE and the HUD I were designed to disclose mortgage costs to the consumer. A commission rebate happening after closing is not a cost to the borrower.

    Laws about rebates from agents to buyers vary from state to state. Consult with your favorite real estate attorney for a legal answer.

  81. I’m in agreement with Diane on this one.

    Ardell says that it “merely” reduces the sales price. Here’s the problem.

    $400K purchase
    5% down, 95% financing, max allowed in the program approved, loan amount $380K.

    Lender approves the loan at $380K, basing the program on the LOWER of the sales price or appraised value. Let’s agree they are the same.

    The seller pays ALL closing costs (assume 3%, $11,400). So far, we are good, in most programs.

    Now buyer’s agent kicks in 1% ($4,000) as a rebate to the buyer paid INSIDE closing. This reduces the sales price by $4,000 to $396,000. At 95%, that make the allowable loan amount only $376,200, but the lender has approved $380,000.

    Lender has a bad loan, they cannot sell.

    Lender’s don’t like that.

    Borrower’s cannot get cash out in a purchase transaction (yes, I know of an exception, but it is exceedingly rare, and possibly no one does it anymore).

    So, what if the 1% rebate happens OUTSIDE closing (in a dimly lit back alley somewhere…cue fog machine and eerie music…). Doesn’t make it legal, it make it fraud.

    But, no one sees, no one gets hurt.

    But suppose some idiot thinks this 1% back is SUCH a great idea that he begins advertising it…say on a repected blog, like I dunno…Rain City Guide?.

    And other folks, realizing that the illegal ruse puts honest and above board professionals at a disadvantage, decide to draw attention to the illegal ruse (cue sirens, blue flashing lights).

    It’s wrong. Don’t do it, unless you already plan to leave the business.

  82. Of course, I could be wrong. I’m not an attorney.

    Maybe we will hear from one. For free!

    I have been told in the lending business it is not legal to offer cash inducements to enter into a loan, as it could be construed as a violation of RESPA.

    I have also been told it is NOT a violation of RESPA to offer gifts (or items of value) to existing or former clients, so long as those gifts are NOT a form of inducement to provide referrals.

    So, maybe for RE’s, it is legal to offer large thank you gifts to your clients after the transaction is closed. Possibly, it is NOT legal to offer such inducements to enter into the transaction.

  83. Well, let me play the advocate for the mortgage lender on this subject.

    The mortgage lender prohibits a cash credit from the seller to the buyer. So, the seller launders the money by paying it to the real estate agent as part of an inflated commission. The real estate agent turns around and outside of the closing without the knowledge or approval of the lender gives the laundered money to the buyer.

    I have to assume that all parties except the lender have full knowledge of the deal when the agreement is negotiated.

    It’s mortgage fraud. I don’t think the issue is so much a RESPA issue unless the consumer is hoping for and wanting full disclosure on their GFE.

    Disclosure would result in lender denial and so the process has to take place “outside” of closing.

    The mortgage lender is harmed in mortgage fraud.

    As we have recently witnessed, the credit markets and our community at large is harmed by mortgage fraud. Make a real estate bed with fake equity even if the house appraises and you have a fake market which collapses with ease.

  84. Well, my question wasn’t related to an inflated commission to give a buyer cash outside of closing.

    There is at least one real estate company, maybe several, and maybe even individual agents, who advertise that they give a buyer a rebate for a portion of the buyers agent commission. I have no idea how their disclosures on this work, but I am concerned that this business model may not be appropriately being disclosed and, I also worry about agent ‘copycats” who think they too can use this method as a way of gaining new business.

    This is legal, I don’t quibble with that at all, and I have no problem with an agent or company reducing their commission for a buyers benefit.

    The total objection as I see it, is that if a seller or an agent are rebating cash to a borrower after closing, then the lender must be made aware of that rebate.

    I guess what drives me for this question, is that there are a lot of companies and real estate agents trying to invent a ‘better wheel’ for real estate, and I don’t think the inherent problems always get clearly thought about, and this to me is a biggie. Risking fraud isn’t anything to be part of in any way.

    And, I’d certainly hate to see a buyer in the middle of a transaction being told that he/she can only have the rebate as a reduction of closing costs (if seller is already paying closing costs). And, I’d also hate to be the sellers agent who now has to hold the buyers toes to the fire and tell them ‘perform or lose your earnest money’. Avoiding surprises is key. Avoiding fraud is too.

  85. “…my question wasn’t related to an inflated commission…”

    Any commission in excess of the amount actually paid to, and staying with, the agent is “an inflated commission…” You might not perceive 3% as “inflated”, but if the actual agent charge is 2% with 1% being returned to someone, then showing 3% without showing the actual amount as 2% on the HUD 1 IS “inflated”. It’s not inflated over “the norm”, but it IS inflated vs. truth and actual charge.

    An “inflated” commission is anything showing in excess of what it actually is, not merely in excess of what most other home prices contain.

  86. Roger,

    Buyer offers $500,000 with 20% down. From buyer $100,000. Loan Amount: $400,000. Let’s say the seller is paying all of the buyer’s closing costs so the agent can’t use a credit and is only charging 2% even though 3% was included in the price.

    Price becomes $495,000. Downpayment reduces to $99,000. Loan amount reduces to $396,000. Seller paid commission shows as 2% instead of 3%.

    Buyer gets an immediate benefit of $1,000 and pays $4,000 less for the house. Lender is still loaning at an 80% LTV. Where’s the problem?

  87. I agree with Ardell.

    On the subject of real estate brokerage fees paid by the buyer and RESPA reform. The loan originator can’t be responsible for quoting those fees but shouldn’t they be accounted for in a summary of funds needed for closing. If we can get HUD to add a summary section to the GFE would you include real estate brokerage fees to the buyer and what would you call them?

  88. Diane,

    No I would not include the real estate brokerage fees in the amounts quoted, as the purpose of that is to advise the buyer of the cash requirements that are in addition to sale price.

    The commissions of agents are traditionally accounted for within the sale price. To show them again and separately as a cost of purchase, would create a duplication of the charge.

    I think what would be appropriate would be for SOLD data in the mls to list all concessions and charges included in the sale price, so that appraisals can be a more accurate protection to lenders.

    If one house sells with 10% of fees plus concessions and the next house appraises for the total sale price based on the first one as a “comp”, a lender loses 10% of their collateral. Future buyers are also relying on that comp to determine a fair purchase price.

    Anyway you slice it, concessions and commissions included in sale prices should be disclosed. Perhaps the net vs. the gross? I do know that some MLS services do require that the agent disclose concessions at the time they record the sale. How that info is later used by appraisers? I don’t know.

  89. Hmmmm. Maybe this isn’t a common practice in Washington state but in PA many large real estate brokerage firms charge the buyer anywhere from $25 to $400 for administrative, regulatory compliance, or coordination fees. These are fees charged in addition to a commission charged to the seller and are not reflected as part of the sale price. We also have buyer agents who may charge a commission to the buyer which is not reflected in the sale price.

  90. Diane,

    Oh yes, those fees :) I remember when I worked in Bucks County PA and the Broker first introduced a $150 Transaction Coordinator Fee. We actually hired someone who was paid $150 per transaction, so it wasn’t a “junk fee” per se.

    We, as agents, did not have the option to not use the Transaction Coordinator, as she was there to make sure all was done in a timely fashion for the office, the agent and the buyer client as well.

    However we did have the option to pay that amount rather than pass it on to our client. It was also customary if the buyer had an attorney, for the attorney to disallow that charge as extemporaneous. There were huge discussions about how all fees should be included in the % and none “hanging out” and “extra”.

    I’m surprised to hear that they have survived. This is another reason for everyone to perceive that the % paid is paid by the buyer. There would be less of a basis to charge them even more on top of the % if everyone didn’t choose to believe that the buyer was getting off “Scott Free” if not charged a transaction fee over and above the %.

    I agree in that case that the coordination fee charged should be on the GFE.

  91. Hey, I forgot you were from PA. Yea, they are the norm now with many agencies. The buyers agree to the fee when they sign the agency disclosure in the first meeting.

  92. Ardell:

    Your scenario makes sense, as the loan amount AND price are reduced to accomodate the buyer receiving a credit within the loan (not a cash rebate outside the transaction), and the seller receiving a reduction in costs.

    I was trying to illustrate the point when the loan amount and price are NOT reduced, and reflecting the reduction in the buyer’s agent’s commission going to the borrower as cash out from the transaction.

    It’s harder to get normal transactions approved by underwriters these days.

    All I ask is let’s try and keep it simple, and get it done!

  93. Roger,

    Keeping it simple and getting it done! is what created the mess we’re in. Let’s not make it more simple than it should be.

  94. Ardell:

    Nor more complicated! :)

  95. Touché!

  96. Ardell:

    As always, I learn something from our exchanges, especially when I remember they are not hostile, just spirited!

    Thanks for providing the simple route to lowering buying agent fees, and passing that benefit on to the buyer.

    As long as it is correctly written in the original PSA, it is simple to execute on the lending side. If the “rebate” were to be introduced late in the process, it could be managed, but no longer simple.

    Not sure, but I think some RE business models are promoting a different structure, that COULD cause difficulty in the lending process, such as promising the buyer will receive cash in hand after the transaction.

    It is probable that that transaction, held outside closing with no public promotion, would fly. However, like a lot of ideas that solely benefit the borrower at the expense of the lender (piggy-back credit score enhancement, back-door down payment assistance, etc.), when they become widely promoted, the lenders push back.

    There are numerous causes for the “mess” we are in, but arguably the most direct cause was encouraging marginally qualified borrowers into home ownership, by a combination of low interest rates (supported by an underpricing of risk), relaxed guidelines, and inadequate oversight in origination and underwriting.

    Here’s a link to an excellent study. It’s long and academic, but the introductory summary and the supporting charts are easily grasped.

    http://www.bos.frb.org/economic/wp/wp2007/wp0715.pdf

    Folks can draw their own conclusions, but the key element I came away with was that it was not primarily the resetting of bad ARMS that has caused the increased foreclosures, but the unwillingness of a class of borrowers to continue to make payments in the absence of rapidly increasing home values.

    Enjoy.

  97. Well, I’ll just throw this in the mix…..

    “It is probable that that transaction, held outside closing with no public promotion, would fly. However, like a lot of ideas that solely benefit the borrower at the expense of the lender (piggy-back credit score enhancement, back-door down payment assistance, etc.), when they become widely promoted, the lenders push back.”

    …..get involved in this kind of deal and expect more than just a lender push back. You might also expect the FBI and maybe some time wearing orange. ;)

  98. “As always, I learn something from our exchanges, especially when I remember they are not hostile, just spirited!”

    Roger,

    The value to me in blogging is finding that point where the industry is in disagreement, so that the discussion helps shape the future. So I’m not hostile nor am I simply spirited. I am trying to push my own comfort zone to the next level and maybe drag a few people with me kicking and screaming.

    While it may appear that I am arguing, I am more challenging “the audience” to help me change my mind, so I do not get stuck in status quo. It is easy to stay in status quo for 100 years in real estate, if one only speaks with those who agree and are also in the industry. That is why I rarely speak about the 95% that doesn’t need changing and beat a dead horse ad nauseum over the 5% that does need changing.

    Hope that offers a bit of “transparency” regarding how I think and operate.

  99. Yes, useful, and refreshing.

    I have been trying to understand your style, attributing it mostly to a desire to draw and retain eyeballs (Jerry Springer draws better ratings than CSPAN), but your explanation of your philosophy and desired outcome is more suitable.

    As mentioned by Diane and I, there is precious little coherent discussion of the original topic, RESPA reform, on the internet/blogosphere, aside from the pointless wailing and gnashing of teeth.

    In addition, in your industry and mine, there is very little collegiality, as each participant tends to see the other participants strictly as competitors. Your industry is structurally better than that of loan originations, as in most transactions RE’s must actively cooperate with at least one other rival/agent to complete a transaction, thus are reluctant to treat one another unprofessionally, for concern of having to deal with that agent in a future transaction.

    Throw two loan originators into the same transaction and you have an unpleasant catfight (no room for 2nd place), not necessarily benefitting anyone. It may or may not result in better terms for the borrower, but it generally does not benefit the RE agents or the seller.

    I think I just re-hijacked the post….

  100. “Not only do Americans spend $55 billion every year on closing costs they don’t fully understand, they “are severely limited in shopping for settlement services that could significantly lower their costs,” he said. About 10 years back, consumers were promised that the Internet would help reduce the costs and complexity of the home-buying process. It hasn’t happened. Even Jackson acknowledged that “when we closed on our house in Washington, I didn’t read everything that carefully.”

    And Jackson is a lawyer.”

    Give me a break!……and he was leading HUD?

    Was it the LENDERS or the INTELLIGENT BORROWERS and UNINFORMED BORROWERS who caused this whole mess? No wait……let’s blame the broker….put them out of business and we’ll look like heroes and everyone will forget that we’ve just been sitting on our thumbs for the last thirty years and living off of tax payers money.

    The mortgage broker is merely a distributor….like a beer distributor….who sells what the “brewery” bottled to the consumer. Some of them drank too much….even the lawyers. Before anyone says it……yes distributors mark up the prices.

    When’s the last time you heard of a distributor being blamed for someone drinking too much.

    ……time for another cold one.

  101. Jeff: I don’t think we’ll lose mortgage brokerage but I do expect a big exodus from the business. We are returning to normalcy in mortgage brokerage. The gold rush is over.

    I don’t think we’ll lose mortgage banking but I do expect a big exodus from the business. We are returning to normalcy in mortgage banking. The gold rush is over.

    I don’t think we’ll lose title agency but I do expect a big exodus from the business. We are returning to normalcy in title agency. The gold rush is over.

    I don’t think we’ll lose [you fill in the blank] but I do expect a big exodus from the business. We are returning to normalcy ……..

    ……….the gold rush is over.

  102. I’d say smaller mortgage brokerages are endangered… especially if they don’t have FHA/VA programs available.

  103. Dale Uesonoda says:

    A standardized GFE/respa reform is a good start in the process of regulating lo’s and this industry. In today’s market, service and trust is truly what it should come down too which is what it should be. I know there are consumers out there that will shop, shop and shop, but there are only a handful that really understand what they are comparing. As mentioned in one of the comments also, although full and thorough disclosure is good, too many papers can confuse the average consumer and overwhelm them to the point of missing the proposed benefits of new regulation. Not to mention, a majority of my clients dont even understand much of the verbage. Nonetheless, I am all for any reform and standardization of gfe’s if the end result is bringing some professionalism and creditbility back into being a good loan officer.

  104. Dale: I agree and think the same can be said for closers and settlement agents. Not everyone likes HUD’s proposed HUD-1 and closing script but if this is what it takes to restore order and restore public trust, I’m all for it.

  105. I think the new GFE is too “cute” looking…IMO it should look like the HUD-1 Settlement Statement so that consumers could compare the GFE to the HUD with ease. With this GFE, they’ll have to weed through 4 pages to match to HUD. I think this GFE is step backwards.

  106. Hi, Rhonda. I think they tested the crap out of the GFE and found this the one that most consumers could comprehend.

    Anyway, the new HUD-1 has good notations matching lines up to the GFE and they tested it as well. It seemed to help consumers.

    Here’s the HUD if anyone needs a link:

    http://www.hud.gov/offices/hsg/sfh/res/200803/5180HUD1.pdf

  107. Diane, consumers may comprehend it…but it’s faulty before it’s out of the gate. I’m just looking at the first line:

    1. The interest rate for this GFE is available until [blank]….until you lock your interest rate.

    The interest rate may change the very moment the LO is completing the GFE unless the rate is locked at the moment the GFE is prepared. Just today we had 3 different rate sheets from most lenders. If this is the form that I will be using for GFE’s that blank will have today’s date and a time on it. Rates are that volatile…you don’t get a day to think about a certain rate in this market. The entire “Important Dates” section is flawed. I wonder if who ever designed this has originated a mortgage?

  108. I think most GFEs will show rates as unlocked. If I had to guess, I would say the studies show consumer confusion over whether or not their rate is locked. If most consumers mistakenly believe the rate is locked, this simple language should help them understand that it is not.

  109. Diane, re-read that first line on the GFE…it’s implying that the rate is unlocked and available for x period of time. I think they tried to dumb down the GFE too much.

  110. HUD says, “The interest rate listed on the GFE
    will reflect the loan offered at the time
    the GFE is given. Until locked in, the
    interest rate will float. For loans
    originated by mortgage brokers, the
    amount of any ‘‘charge or credit to the
    borrower for the specific interest rate
    chosen’’ will float with the wholesale
    market.11 This is because mortgage
    brokers must report the precise
    difference between the price of the loan
    and its par value in the ‘‘charge or credit
    for the specific interest rate chosen.’’ As
    a result, borrowers who use brokers as
    defined in this proposed rule and
    choose to float will float according to
    wholesale lenders’ changes.”

    I may be wrong but I think consumers need to know whether or not there is a window on a rate quote that precedes and actual lock. for instance, in some shops a loan originator may quote 5% and be able to honor the quote and lock it within the next two hours, or maybe one day. In other shops, there is no window. You either lock now or not.

    There may be a better way of wording this sentence, Rhonda. Any ideas? This is the kind of comments they need – help with the wording.

  111. This is exactly what happens when you get politicians and government entities involved in any policy or decision making…..a complete cluster _____ (you fill in the blank). If they would have went first to the NAMB and the MBA they would have this thing ironed out already. But they think they know what’s best and it makes them feel like they are doing something….it makes the public feel like they’re doing something.

    It’s all a mess brought on by lenders who invented subprime and interest only loans, loosened up their underwriting standards and didn’t consider any of the risks. I think it is wrong to blame brokers and others for the mess.

    I could go on but I won’t. But let me ask one question? How did the amount of closing costs a borrower paid contribute to the mortgage mess we are in now? My answer is that it didn’t. What caused it was the types of products borrowers were put in (Subprime, IO, Option ARMs, 100% LTV) Where are those products now?

    Ok that was two questions.

  112. Jeff Comment number 111…..HERE HERE!!!! I agree completely with what Jeff wrote, I absolutely could not have said it better. The lenders are trying to pass the buck, for the wrong they did. They came out with those products…naturally Brokers/LO’s are going to use them. I personally use to shake my head and say to myself “How can they do that”? Well, they couldn’t. Does anyone besides Jeff and myself see what is happening here? I see Politicians will not be happy until the Brokers and LO’s are pounding the pavment for jobs and out of the loan business. Then what will consumers do? What will lenders do for loans?

  113. Ho-hum….zzzzzzz

    String me up if you care to, but I’m just tired of the same ole same ole….

  114. Well….Diane….by that statement, I see that you really don’t care about what will happen to the industry. You see what will eventually happen politicians (those who are only looking out for themselves and their future aspirations) will eventually so overegulate the industry that small correspondent lenders and brokers will eventually disappear. By doing so they will create a monopoly again. Which will open the door again for consumer abuse. They will have borrowers backed into a corner with no where else to go.

    Oh, by the way, who caused all of these regulations to be introduced in the first place? (RESPA, TILA, ECOA, etc…) Ding! Ding! You are correct……BANKS! There were no brokers to blame then now they have a scapegoat.

  115. I do care, Jeff. I’m married to a mortgage broker. I spent a good deal of my career in mortgage banking.

    I expect that mortgage brokerage in its traditional role will survive.

    I expect that mortgage brokerage as a tool for predators and a fast buck business for opportunists will not survive.

    Traditional brokers aren’t the ones moaning.

  116. So you’re saying that traditional brokers don’t make YSPs? They only charge par rates and their borrowers all have money for broker fees and closing costs? If that’s so then they aren’t giving their borrowers many choices….either have the money or go someplace else.

  117. Diane, how do you define a traditional broker?

  118. No, I am saying that traditional mortgage brokers understand how to make a living with YSP in the mix of choices rather than the only tool in the box. I am saying that traditional mortgage brokers can adapt as they have over the decades as programs, disclosures and underwriting guidelines move through normal cycles of change.

    Predators and nouveau opportunist mortgage brokers can’t adapt because their entire game has been based upon obscure disclosure and a pricing structure that provides an incentive to place consumers in products with higher than market rates.

  119. All businesses and organizations adapt, or fail. Smaller businesses make more adaptations and innovations, but also fail at a higher rate than bigger businesses. The mortgage broker business is ALWAYS smaller than the banks. Both brokers and banks have had immense failures in the past 18 months, and it is not over.

    Good mortgage brokers will adapt. The changes will be painful, as they have been in the past. Imagine the pain as brokers adapted to the lending environment of the past few years (Neg Am Loan!!?? Never!??….oh, we are losing customers to brokers and banks that offer them? Well, I guess we better learn about them, and offer to explain them, and let the customer have what they want!).

    Jeff, Randall, et al, continue to advocate for the wholesale side, as I do, but pick your battles wisely. As long as you make the arguments that benefit YOUR customers (and not just our business model), you should succeed. Get to know a few politicians, if even at the local or state level, and have a conversation with them. Yes, they are about survival, just like we are, but that is usually not their entire persona.

    Frankly, I think economic life is going to get tougher for everyone. I also think we are up to it.

  120. Roger: I think you’ve nailed the issue. Pick your fights and make sure the outcome benefits the consumer. Be part of the solution. I like that.

  121. But Diane, if HUD and the Fed have their way, your husband won’t have YSP in the mix.

    The borrowers with money will be our only customers. I don’t see anything wrong with a broker who uses YSP as his only tool in the box as long as he’s/she’s not charging fees. I dare say that with credit card balances being at an all time high and savings being at a all time low, that borrowers with no or little money will be the majority of borrowers for sometime to come. Or if the Gov’t has anything to do with it, they may not qualify since they don’t have any money in the bank.

  122. If YSP’s go away, traditional mortgage brokers not be originating mortgage loans with YSPs but they’ll still be in business.

    Let me put my mortgage underwriter hat on for a minute and say that there are plenty of want to be borrowers – in a normal market, one that isn’t artificially booming – who are not in a position to purchase real estate.

    Demonstrating the ability to save, demonstrating not only the ability to repay but also the willingness to repay debt – these are core to traditional mortgage underwriting decisions.

    A traditional mortgage broker helps potential borrowers determine if they are ready for homeownership and, if not, tells them to save their money, gain stable employment and pay their bills on time. In this way a solid pipeline of business is built within your community. People will come back even years later, ready to step into homeownership.

    It’s not about the fast buck. It’s not about playing the FICO game. It’s about the real life creation of homeownership that lasts – the kind that can last through most of life’s little bumps.

    This is the tough love that traditional mortgage lending is all about.

  123. There is a threat that YSP for brokers could go away.. That should be resisted with all of our abilities. YSP’s can be used to help the consumer, and that must be accurately demonstrated to the regulators.

    What is useless to fight against is the battle over full disclosure of YSP’s, and the concept that the YSP is the borrower’s money, given in full knowledge by the borrower, to the broker, in whole, or in part.

    Anything else seems to be a solely self-serving argument, and will probably not withstand the gauntlet of state and federal regulations coming down the pike.

  124. Diane…you must be living in or hope to live in Utopia. Some traditional legitimate mortgage brokers will still be in business. The ones that are will suffer a big loss of income. I would bet half. Half of their “traditional” borrowers will not qualify anymore. I know plenty of people….probably most of the people that I know… that have stable employment and pay their bills on time and have a difficult time sayving money…..yet they have nice homes and pay their mortgage on time. They could sell their house now and make no money. With the loss of YSP, they would not qualify for a mortgage because they couldn’t pay the closing costs. Sounds fair to the customer.

    Roger…I’m not arguing against full disclosure of YSP. We do that now.
    If regulators don’t understand that YSP’s can be used to help the consumer….then they never will. This isn’t something new. Although, I have met my share of auditors (fed & state) that need a little education. Hmmmmm……why haven’t the regulators taken any of the blame. For example…..Maryland Banking Auditors call us every 2-3 years, send us a questionaire to complete. We send it back along with a report of loans originated for the audit period. They select loans to audit from that report and request that we send electronic or copied files. You talk about a big gap in the fence!

  125. LOL, thanks, Jeff. If Howard is reading today, he’s chuckling for sure.

  126. Hi Jeff,

    I’m back in the office now and want to respond directly to comment #114.

    These federal laws, TILA, RESPA, ECOA and even the FCRA came to us in the mid-1970s during a wave of federal consumer protection legislation. Yes, banks and S&Ls were the primary originators of these loans, and brokers did exist back then, but we didn’t call them brokers.

    We called them hard money lenders.

    Brokers will adapt and survive.

    I just read on the CR blog today that when BOA takes over C-Wide, that they’re going to do away with pay option ARMs and stated income. They’re not saying what they’ll be doing with wholesale.

    However, there will always be borrowers with less than perfect credit and self-employed folks that can’t document income.

    The future of the mortgage broker resides with hard money/private money lending, FHA approval, and conforming.

    YSP has been mis-used for year, even if there are instances when it has helped the consumer. Because of the mis-use by many, I predict that the consumer will have to consent to pay the broker out of YSP, the way the GFE is trying to be changed right now.

    The industry has no one to blame but itself. Pointing fingers elsewhere, such as towards politicians, shows our arrogance.

    It is up to us who remain, to become leaders for changing these deceptive practices.

  127. Perhaps this is an east coast/west coast thing…..just as an aside……….traditional mortgage brokers did exist and we did call them mortgage brokers. I was in the biz in the 70s and we had a few in the Pittsburgh metro market. They primarily originated FHA and VA mortgage loans. The MBA School of Mortgage Banking which I attended in the 70s included in its history the definition of mortgage brokerage as I have described it.

    Pre-subprime, hard money lenders operated outside of our mortgage banking marketplace.

  128. Oh….I see…now I’m arrogant….LOL. I apologize….Politicians and gov’t entities who have dropped the ball for so many years and now trying to show that they deserve their jobs has nothing to do with this.
    Bear Stearns doesn’t share any of the blame either. At least not in the eyes of the Fed. Daddy to the rescue!

  129. It’s ironic that we, brokers and bankers, have yet to define what are value is??? Are our services worth 1%, 1.5%, 3%???? What is it? It will be a shame if YSP is eliminated all together as it does have many benefits for a consumer. Does it matter whether we are paid on the front end or the back end as long as we explain the option to the client? I like the idea of a universal form for the Good Faith Estimate so it makes comparison shopping a realistic option. With so many disclosures, we have buried the client in paperwork and so many just throw up their hands and trust the system. It is a daunting task for the average consumer to comparison shop. We would need them to take a leave of absence from their job so they can sift through these reams of disclosures. Do we have too many law students coming out of school with nothing better to do than create an opportunity of controversy! Make it simple, direct and understandable for a 5th grader to understand the art of financing a home. Then if they default, it is their fault, there is no one to blame.

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