Mortgage Brokers and Loan Originators Should Support HR3915

Why am I not surprised that mortgage brokers are in a panic over HR3915, the Mortgage Reform and Anti-Predatory Lending Legislation? Back in January, Barney Frank gave everyone ample notice that he was committed to passing anti-predatory lending legislation before the end of 2007. Then the subprime meltdown began, setting a political stage for a perfect storm, putting mortgage brokers right in the path of harm’s way. Bush, your weapons of mass destruction are in the hands of Congress. Or so the mortgage brokerage industry would have us believe.

The fear racing through the brokerage community is rampant.  Wide-eyed loan originators are dragging themselves into my classroom looking like Iraq war veterans needing post traumatic stress disorder talk therapy, and the bill hasn’t even been put before the full house for a vote yet.   Let’s see if we can identify where all the fear is coming from.

Establishes a Licensing System for Residential Mortgage Loan Originators
We already knew this was coming. Chuck Cross with the Conference of State Bank Supervisors has been working on national loan originator licensing for months. Even better, the current proposed version of HR3915 says we’ll be keeping track of all LOs, including loan originators who work at federal and state chartered banks. This is what the mortgage brokers have said they want.

Creates a Residential Mortgage Loan Origination Standard

There’s nothing inside this paragraph that sounds too scary.  Licensing? Full disclosure? LOs are already required to do these things. What’s next? Oh, here it is:  Anti-Steering.

“For mortgage loans that are not prime loans, no mortgage originator can receive, and no person can pay, any incentive compensation (including yield spread premiums) that varies with the terms of the mortgage loan (except for size of the loan and number of loans).  Regulations will be promulgated to prohibit mortgage originators from (1) steering any consumer to a loan that the consumer lacks a reasonable ability to repay, does not provide net tangible benefit, or has predatory characteristics, (2) steering any consumer from a prime loan to a subprime loan, and (3) engaging in abusive or unfair lending practices that promote disparities among consumers of equal credit worthiness but different race, ethnicity, gender, or age.”
Let’s try to analyze why mortgage brokers and LOs are so upset about this provision. For the past year, LOs on this website have fallen all over themselves telling us how they don’t do any of these things like (gasp!) steering consumers from a prime to a subprime loan IN ORDER TO MAKE A HIGHER YIELD.  So, if you good guys out there didn’t steer or originate loans with predatory characteristics, why are you so mad about this bill? You keep saying you want the bad guys out of the business. If it’s true that you’re not doing any of this stuff, then why all the whining? If the subprime market weren’t already dead enough, this bill will put the nail in the coffin. But don’t be fooled. Instead of subprime, the loans will be called something else.  When there’s money to be made, the creative mind knows no boundaries.  This provision gives mortgage brokers and LOs exactly what they’ve been telling us they want: the end to the abuse of YSPs.

Ability to Repay/Net Tangible Benefits
“Requires creditors to make a reasonable determination, at the time the mortgage is consummated, that  the consumer has a reasonable ability to repay the loan, or;  for refinancing, the refinanced loan will provide a net tangible benefit to the consumer.”

Well I call “reasonable ability to repay