It appears that Barney Frank penned a letter to Ben Bernanke a week before the Fed rule on Loan Originator Compensation was originally scheduled to go into effect. Poor Barney was worried that the Fed had perhaps gone a little too far with their rule and that they should perhaps reconsider a few items (they have not as of yet) stating “I believe it was a mistake for this rule to go beyond what was required in the Financial Reform Act…”
Barney is requesting two changes to the Fed’s rule on LO Comp:
1) allow mortgage broker companies to pay their employees on consumer/borrower paid compensation. Barney Frank writes regarding the Fed’s rule “…differs from Section 1043 of the Financial Reform Act, which merely states that if a loan originator receives compensation from the consumer, that originator cannot receive compensation from another source…while the more restrictive Fed rule prevents the sharing of the consumer-paid compensation by the firm with an employee for that employee’s work on the loan…”
2) allow mortgage brokers to make small fee reductions at closing to cover shortfalls which sometimes result because of last minute third party fee changes, extensions, etc.
Frank adds that he’s aware that some loan originators will use this tactic (helping with closing cost) “with the intent of circumventing the rule’s consumer protections. Therefore, it would be appropriate to limit the frequency of such use and to limit either the dollar or percentage of the reduction, and to monitor a loan originators’ use of this flexibility to ensure that such flexibility is not abused.”
Is it just me or does that last paragraph seem whacky? How is a mortgage originator who helps pay an extension fee abusive to the consumer? I seriously don’t get it.
In my opinion, if the Fed wants LO Comp to not be a factor in the transaction, then they should probably ignore Barney’s second request. I’m picturing NAR contacting Mr. Frank insisting that this be corrected so that their members are in a situation at closing where they might have to cough up some of their commission.
Now that we’re a few weeks into the new LO Comp rule, I do like having my pay taken out of the equation. Can’t wait to see all the other changes coming this summer with Dodd-Frank <sarcasm> and all the back peddling that will probably happen (just like this) from all of the unintended circumstances it will cause.
You can read the entire letter to the Honorable Ben Bernanke from Ranking Member Barney Frank here.
Hat tip to NAMB.
“and to monitor a loan originators’ use of this flexibility to ensure that such flexibility is not abused.
“The problem with this and why the FRB rule was likely upheld by the appelate court, is that LOs get to subjectively decide who will receive help and who doesn’t. This results in uneven and possibly unfair treatment by LOs towards consumers.”
Which is why I suppose that since all laws are made for the lowest factor, they might as well keep it as it is and not allow ANY LO to help clients with their commission…why leave any chance that a LO might use his commission to help – I’m missing on how it was a bad thing (paying for extenson fees).
I wonder how NAMB found the letter and if Barney wanted NAMB to use it.
No, I don’t like Barney Frank… I think a lot of folks in the re industry (not just LOs) may feel the same way. I don’t like how one moment he’s telling Fannie, Freddie & FHA to lower the bar so that more homes can be sold to more Americans and the next moment, acting like he and his fellow congressmen had nothing to do with the housing crisis. Typical politician… I have no respect for him.
I don’t think highly of any politicians… once THEIR compensation is reformed, perhaps I’ll change my view… talk about abusing the system.
Rhonda,
Define what you mean by “the lowest factor”, as it sounds too much like it means the “protected classes” of our society. I’m sure that is not the case, so if you could clarify who is “the highest factor” and who is “the lowest factor”, that would be helpful.
You ask: “Is it just me or does that last paragraph seem whacky? How is a mortgage originator who helps pay an extension fee abusive to the consumer? I seriously don’t get it.”
There are prejudices that exist that even those who have them are sometimes not aware of. They rationalize their prejudices with “that person was more work and the other was less work”. That is why something as important as real estate selling and real estate lending has to be monitored and controlled by the government.
Frankly, this Country, left to its own devices in real estate brokerage and lending practices, does not have a good track record for being fair to all. That is WHY there ARE “protected classes”. If they didn’t need protection…we wouldn’t have to identify them in that manner. To suggest all are treated fairly is beyond naive and a bit ostrich-like.
The laws I’m referring to regarding “lowest factor” is the lowest factor of loan originators… those who abused and were predatory…
Ardell, I have never said that all are or have been treated fairly – where did I say that?
I am saying with the new LO comp rules, all will be treated “the same” as far as the LO not being able to use their commission.
Consumers will still not be treated the same if they need help at closing with an extension fee or closing cost because now it may be up to the real estate agent to decide if they want to help out or not — how fair is that, Ardell?
Ostrich? Please.
I don’t know how fair that is, Rhonda. It really depends on why there is a need for the extension, creating the extension fee. Something creates the need for the extension, and whomever is responsible for that, should pay it.
Ardell, I agree and that’s how I’ve done it in the past (before the Fed rule was created that bans this)… I often would split the fee even if it was my borrower who was a bit slow in providing documentation.
Apparently, according to Jillayne, Barney Frank and the Fed, some LOs “use” this as a way to get business?? This is where I’m confused (from my comment in my post)…some days it feels like LOs, even the good (ethical, experienced) ones, can’t win…we are all being treated as if we are lowest factor of the industry (those who committed fraud, were predatory, etc).
Look at this a little differently, Rhonda. “The Lowest Factor” is the consumer with the least ability to discern.
It may be someone who doesn’t speak English well, that “falls to being prey”. It may be someone who is the first in their family for generations who is able to own a home, and has few trusted opinions to rely on, who “falls to being prey”. It can even be a wealthy doctor who is OCD and superior in his chosen profession, but knows little about homes and finance, who can “fall to being prey”.
You focus on the “Predatory Lender”. But the focus for the government when laying the “protective” ground rules for their constituency is not so much about who does the predatory practice as it is about protecting those who are most prone to being “fall to prey”. You don’t have to kill all the lions to protect all the bunnies. Weird analogy, but it’s Easter Weekend. It brings to mind “whatever you do FOR the least of my brethren…” phrases. It’s protecting “the least of the constituency” that is the issue for politicians and lawmakers, not about punishment.
The purpose of building a good “house” for the chickens, is not to punish the fox.
Im actually on set as an extra for a movies right now …. short reply: should people who do not understand the terms of a mortgage have one? Would requiring first time homebuyers take a test resolve this situation?
“I’m missing on how it was a bad thing (paying for extension fees).”
Because some borrowers received the benefit of lower fees and other borrowers did not.
So that leads us to this question: Which borrowers pay higher fees?
The FRB rule suggests that borrowers of protected classes ended up paying higher fees
The FRB rule is aiming for equal treatment for all borrowers.
Yes, fees may go higher initially across the board. It’s also possible that competition (in our capitalist economy) will drive fees lower.
Politics is messy but this is the best system we have….for now. BTW my econ professor in grad school agrees with you and thinks that we’re moving towards an oligarchy.
http://en.wikipedia.org/wiki/Oligarchy
In the past, some borrowers paid extension fees, some did not and some I split the fees with… it depended on the circumstance…
No help with extension fees or closing cost = same treatment for all borrowers = Fed’s wish. Barney Frank’s request to amend this goes against the spirit of what the Fed wants.
All the regulations are driving the cost to a mortgage higher… other factors that are coming our way, like inflation, will do the same.
Jillayne, check out the last two paragraphs of this article… it pretty much sums up why I have disdain for Barney Frank:
http://www.boston.com/bostonglobe/editorial_opinion/oped/articles/2008/09/28/franks_fingerprints_are_all_over_the_financial_fiasco/
I think that most Originators made these decisions on the fly on a transaction-by-transaction basis. in the looking glass of one transaction no malicious intent by the Originator. If you take these credits on an aggregrate basis of all Originators in a company, they could look as if the company as a whole or certain classes of people are paying higher fees. I do not think the gubment (yes gubment) is looking at the individual transaction, but the aggregate of companies as a whole.
My issue is that if you treat each and every borrower “the same” then costs rise for all borrowers. There is nothing in any of the regulations making transactions any less expensive.
There are inequalities in the world and to some extent we should accept that. I believe that what makes inequality discrimination is the intent of the person providing the service. I am not sure how to track/monitor/prosecute the “intent” of the individual.