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

130 thoughts on “Mortgage Brokers and Loan Originators Should Support HR3915

  1. “But don’t be fooled. Instead of subprime, the loans will be called something else.”

    I was thinking that Jillayne. Hopefully there will be a clearer definition besides “subprime” that will prevent a simple name change from rendering the bill useless.

  2. Hi Everyone,

    Brian has posted a letter to Senator Dodd on Bloodhound supporting NASD-type licensing and other things. Here was my comment to Brian’s readers:

    Processors and underwriters need not be licensed. They only need to NOT be supervised by a sales manager whose job and bonus depends on approved loans.

    I like the idea of requiring tiered licensing.

    In order to change how banks disclose their yield, we would have to change RESPA, a bill that is NOT going to Senator Dodd. This constant whining we hear about banks not disclosing their yield is getting boring. Not gonna happen.

    The way people are pouring into HUD counseling offices right now, they need more people in there helping defaulting homeowners. Don’t like taxpayer money going in that direction? VOLUNTEER to help out in one of these places.

    Savy investors? No way. Some of these people went to the get rich quick seminars and were lead to their own demise by real estate agents and mortgage people. SOME investors are savy, not all.

    We must change the nature of the relationship between the LO (no matter where they work) and the consumer, from that of retail to fiduciary.

    HOWEVER, If mortgage brokers could get past all their fear, they might be able to see that if ONLY MORTGAGE BROKERS/LOs had fiduciary duties, they would have the opportunity to differentiate themselves between bank LOs. But right now they’re very stuck on same/same treatment, which I believe is a mistake.

  3. I have carefully reviewed a summary of the proposed HR3915 Bill and I do not see any language prohibiting the payment of YSPs with the exception of non-prime loans.
    This is addressed in the section marked Anti-Steering
    and addresses the payment of YSP that benefits the originator and not, heaven forbid, the consumer.
    This happened recently to a past client of mine. He was refinanced out of a thirty year fixed rate mortgage at 5.375 and put into a Monthly Neg Am Arm, rate currently 9.79, margin 4.85%. Broker charged him 1% ($3393.00) and took $9500. in YSP¦ AND there is a three year prepayment penalty. A CRIMINAL ACT!! It is the actions of these unscrupulous loan originators that created the momentum for this reform bill. Unfortunately, it will also affect those of us who had our customer’s best interests at heart. I would also like to note that the customer was a minority and his loan officer belonged to the same minority group. As I have seen is often the case, minority loan officers often put the financial screws to their same class minority clients. In this case, the borrowe received cash back in the amount of $54,000 giving up his 5.375% FIXED RATE, just so the loan officer could make $13,000. Disgusting!!!!!

  4. Hi Colleen,

    Thanks for stopping by RCG. Mortgage brokers have said publicly that they are against predatory lending.

    NAMB Director Testifies About Ending Mortgage Abuse Before Senate Subcommittee

    NAMB President Testifies Before Federal Reserve Board Hearing
    About Curbing Abusive Lending Practices, Calls for Alternatives to Expanding HOEPA to Effectively Address Issue

    So why do you think they’re opposing this bill?

  5. I believe the opposition rests in the vagueness of the bill and I, for one, would support language that clarifies the intent of some passages, such as the prohibition of financing loan fees in HOEPA loans. These consumers don’t have the money to pay fees which is why they are getting this type of loan to begin with so, this class of borrowers would be penalized as I read the proposed bill.

    I would also like to note that I have been in the mortgage business
    for over thirty years and have appreciated the fact that homeownership has been opened up to a larger group of people via the plethora of mortgage products, especially over the past five years. While the industry is going back to “old school lending” translation “giving the borrower a loan they can pay back” there is still a demand and a need for mortgage products for those “square pegs”`that do not fit into “round holes”. However, not at the expense of the consumer. I especially applaud the discussion to remove the prepayment penalty, or, at the very least, giving the borrower the option of refinancing without penalty in advance of a rate reset. I never did embrace the idealogy of setting a borrower up to fail……

  6. How would enforcement work under this bill? HUD is charged with RESPA enforcement, and the agency’s enforcement resources are spread pretty thin. These new provisions will only protect consumers if loan officers/brokers think there’s a possibility that they’ll get caught breaking the law. If the law’s going to work, it should set aside additional funding for enforcement.

    My other concern about the bill is timing. Right now the credit markets are worried about the risk and cost of lending. This bill would add compliance costs, making lending more expensive. This could make mortgage credit even more expensive and harder to come by, prolonging the housing downturn.

  7. I think that the bill will create some uniformity in the market place and allay the concerns of mortgage backed securities investors and make them more willing to invest in mortgage loans. The compliance issues are already in place, just need to be enforced, so I do not see this bill as creating problems in the secondary market.

    Also, I really like the requirement for Loan Originators to be licensed as they are in the State of Washington. The criminal background check that was instituted by the State this year has uncovered felons acting as loan officers who had convictions for Identity Theft (can you imagine that!) among other things. Log on to: to check out these deadbeats for yourself.

  8. Hi Colleen,

    Here is the language regarding financing closing costs:

    “A residential mortgage loan that involves a refinancing of a prior existing residential mortgage loan shall not be considered to provide net tangible benefit to the consumer if the costs of the refinanced loan, including points, fees and other charges, exceed the amount of any newly advanced principal.

  9. laxtosnoco,

    You are right on in regards to the existing lax enforcement by HUD. Most of the enforcement has been left up to the states.

    On the other hand, I advocate self-regulation.

    I’m not so sure it would add too much risk or cost. Compliance systems are already in place on the bank/lending side. Credit markets are worried about the quality of origination and underwriting. The bill says if that piece is not in place, then the lender and subsequently the mortgage broker would have to buy the loan back (The conditions for doing so are lengthy and there are some safe harbor provisions.) So I think the opposite is true, the credit markets should like this bill…..with one big exception.

    Investors will not want to be held liable. Honestly, I think this part of the bill is going to be removed before it comes to a full vote, or the bill will fail. Now that WOULD put a damper in the secondary market.

  10. Jillayne – I don’t think HOEPA loans are funded at 100%. Is bill referring to a HOEPA loan being refinanced into another HOEPA loan? Again, language is vague. Bottom line is people that need these types of loans have no cash and no where to go if costs cannot be included in the loan amount. My take on the matter……..

  11. “The way people are pouring into HUD counseling offices right now, they need more people in there helping defaulting homeowners. Don’t like taxpayer money going in that direction? VOLUNTEER to help out in one of these places.”

    Why? My clients never have that problem. Is it necessary for me to volunteer my time to people who weren’t wise enough to hire me in the first place?

    My volunteer efforts are better spent in my community, helping San Diegans clean up from the ashes of the wildfires.

  12. Colleen,

    regarding your comment “I really like the requirement for Loan Originators to be licensed as they are in the State of Washington”…currently in our state, only LOs who work for Mortgage Brokers are required to be licensed. If a LO works for a bank-mortgage company (like Wells Fargo, WaMu, Countrywide, Chase, etc.); they are not held to the same standards.

  13. Jillayne, there are parts of the bill that may be beneficial and there are others that may be damaging to consumers and the industry. We cannot pick out what parts of the bill we agree with and only have that pass. If this bill passes as it currently stands, it will be a set back for many of those stuck in subprime mortgages needing a way out. I don’t think the cries of those of us in the mortgage industry is about the bill as a whole.

    Bottom line, consumers will be punished the most. Why shouldn’t they have the right to make financial decisions for themselves instead of the Congress mandating whether or not they should be able to refi? Net tangible benefit is very grey. And honestly, there are times when I met with a consumer and their reasons for refinancing may not seem clear to me. Sometimes I really have to grill them so I can understand for my own peace of mind “why”. But it’s their choice and it should be.

  14. Jillayne,
    I am in support of the bill as I agree with both you and Brian. Licensing is a major issue and/or standpoint. I also do not think that the lobby dollar will allow for the bill to affect the secondary market or I should say “Investor

  15. Brian says, ” Why? My clients never have that problem. Is it necessary for me to volunteer my time (at a HUD counseling office) to people who weren’t wise enough to hire me in the first place?”

    That’s right; it’s always someone else’s problem, yet nobody wants to fund the bill.

  16. Hi Rhonda,

    “I don’t think the cries of those of us in the mortgage industry is about the bill as a whole.”

    I’m really glad to hear that. Do you have any news stories or press releases that would back that up? All I’m reading and hearing is that the whole thing is bad and how many thousands of signatures are on the “no” petition.

    “Net tangible benefit is very grey.”

    The bill will direct HUD to come up with a list of net tangible benefits that will meet guidelines.

    “But it’s their choice and it should be.”

    Not really; not anymore when taxpayer dollars are going to be spent bailing them out for their choice.

  17. Hi Shane (Apella),

    Brian and I agree on creating a meaningful national licensing system and we’re currently working on a co-authored blog article on this very topic.

    Looking back at the S&L crisis and then the emergence of FIRREA and USPAP in the appraisal industry, do you think setting high standards can work for LOs?

  18. “The bill will direct HUD to come up with a list of net tangible benefits that will meet guidelines.” = grey. It’s an unknown at this time.

    I’m sorry Jillayne, I still feel the home owners right to make their own financial decisions and to have the opportunity to refinance without the Gov. stepping in to say, “Sorry, we don’t see enough benefit here for you to proceed for your refi”. Or if their scenario barely fits the round peg of the gov. approved refi, LOs and lenders will be too cautious to proceed with the transaction in fear of legal reprocussion.

    National licensing of bank and broker LOs should help weed out most of the undesirable LOs.

    Taking away options at a time when home owners ARMs are adjusting is going to hurt home owners and prevent them from being able to get decent financing. Many will be forced to more expensive options, such as hard money.

  19. Hi Rhonda – I realize that the DFI licensing requirement only applies to brokers at the moment. Mortgage Bankers and Banks should not be exempt from background checks for their employees as well. A number of banks do have their employees go through background checks before hiring, although I cannot say whether or not Mortgage Bankers employ the same standards as an industry wide practice.

  20. Rhonda says:

    “I still feel the home owners right to make their own financial decisions and to have the opportunity to refinance without the Gov. stepping in”

    A mortgage transaction has transformed into a complex decision. Retail loan originators know way more about the intricacies of the ins and outs of mortgage loan products than an average, random consumer.

    We are now all experiencing the result of a knowledge/power imbalance. There has been way too much power and knowledge in the hands of retail LOs. Now the government is stepping in to balance the scales of justice and taking some of that power away from the retail origination side.

    If LOs want more power back, then they are going to have to step up to the plate and take on more RESPONSIBILITY and, yes, that means more LIABILITY in the form of becoming a fiduciary, which HR3915 comes excruciatingly close to creating.

    Yes, some home borrowers are very knowledgeable and savy but they are the exception, not the rule. Look at it like a bell curve. The majority of home borrowers have no idea how an option arm works, hence, they fell for the teaser rate and now we have massive negative consequences.

    I have been saying this for years but I’ll go ahead and say it again: If the mortgage industry wants the government off their back, one way to do it is industry self-regulation of ethical conduct.

    As a group, we are all better off taking care of each other and helping each other grow ethically than sitting in our own little forts and doing battle with each other individually, which will result in the government stepping in and telling us what to do.

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  22. “That’s right; it’s always someone else’s problem, yet nobody wants to fund the bill.”

    No, Jillayne- it’s the customer’s problem for overextending themselves. If they received faulty or dishonest advice, they should consider a lawsuit against the REALTOR and originator that gave them incorrect advice.

    Some people got sold a bill of goods; they should seek remuneration for the aggravation that faulty advice caused. Some people are so caught up in the religion of materialism that they will defy 2nd grade mathematics for the instant gratification. Finally, some people are just deadbeats.

    I assure you, that failure is a cogent instructor; ask my 6-year old daughter. She is very careful riding “big waves” on her boogie board because her father loved her enough to let her fail.

  23. Jillayne,
    I will enjoy reading your co-authored blog post as I am a fan of both of your writings. I will be looking for it.
    I agree with higher standards. In my opinion I think that the lending institutes are at a cross roads and that there is a strong possibility of great improvements in standards. The last number that I have heard per Bloomberg/CNBC is that the current dollar amount to counter the lending/mortgage backed securities is something like 35 to 40 billion. Bigger then the S&L bail out.
    Licensing for loan officers and originators is one that appraisers have called for as of some time now… years actually. One of the reasons is because appraisers have very little means available to lodge complaints with in many states should they view violations in law or practice by lenders. Appraisers are not the only ones that have had problems in this area as real estate brokers have had problems lodging complaints and even the regulators are not immune as we are seeing with the OFHEO voicing their views on the Cuomo case in New York.
    Among higher standards is the need to put into place a regular educational process similar to what we see in the real estate and appraisal industries. I say this because not all states require this in the same way as Washington State and others now do. Michigan at this time does not and is also in the top five states for foreclosures. Does that matter or have a play? At this time I do not know but I think that education will help counter future events or repeats in high foreclosures.
    Back to the standards I do like the idea of tier based licensing per experience and/or time under a mentor. Underwriters must be held accountable for the interest that they represent by law or agency as it is their job to ensure and protect the lenders assets and standing similar to that of accounting firms on Wall Street (in my view). Perhaps underwriters do need to be licensed similar to the General in the appraisal industry (highest level of license).
    Likewise loans should be mandated as secured by escrowed taxes and insurance. Even if PMI is not applied then at least a transaction insurance policy of some kind should be purchased. I think that a lender “USPAP

  24. Wow, Brian. I couldn’t have said that better myself!

    Colleen, when I’ve talked to LOs who work for banks, they do not go through near the same hoops as those who are licensed. I would like to have the same rules for all for the consumer sake.

    When a borrower who has been wronged by a lender contacts me for help; most don’t know who to turn to or where to complain. It’s a mess.

  25. Hi Brian and Rhonda,

    Failure in the form of maxing out credit cards is one thing.

    Failure in the form of losing one’s home to foreclosure is something completely different; the stakes are much higher for the adults involved as well as any children in that family.

    Class action lawsuits are long, drawn out, and the payout for the consumer comes too little, too late. Individual lawsuits are very expensive. The average homeowner in financial distress from default doesn’t always have several thousand to put down for an attorney’s retainer fee.

    Brian, would you let your daughter wade WAY, way out there all by herself and risk something more than just a big wave? No, I don’t think so. You probably have a tolerance for how big you’d let her fail.

    The retail loan origination industry must come together and decide where to set the bar between being too paternalistic, and being too permissive.

    The government is stepping in with HR3915 because the retail loan origination side isn’t doing anything on their end but letting the homeowner choose to go into the deep water without a boogie board to hold onto, and if they drown, so be it.

  26. Hi Rhonda and Colleen,

    For a point of information, I have taught upwards of at least a thousand Loan Originators in WA state now, and 100% of the time, the LOs who came from a banking background have had more basic mortgage education and compliance training than all the other students who have only worked for a mortgage broker or a consumer finance compay.

  27. Rhonda and Brian: You are the good guys and you may just not understand the influence a predator mortgage broker or originator has on a consumer. Anyone involved in the business of closing mortgage transactions has witnessed the misplaced trust. You can’t blame those consumers anymore than you can blame children for eating all the Halloween candy in one night.

    The federal government has to step into the void because the MBA and NAMB and too many states have done nothing to protect those consumers.

  28. Hi Shane (apella),

    Thanks for your well thought out answer! If I were teaching a class inside this blog thread, you’d get a gold star for that answer.

    Here is something that stands out for me in what you said:

    “In my personal opinion I think that the commission payment structure for origination compensation needs to be reviewed closely as it seems to hold much of the motivation to issues of appraiser and service provider pressure.”

    I believe that the way mortgage brokers (and LOs) are compensated will have to become more transparent. It’s going to transform into something very different than what it is now.

    I know mortgage broker LOs are going to say “we already have to disclose our yield and banks don’t.”

    Seriously: I do not want to have a RESPA conversation. For those of you who might be tempted to bring that up, I will have to bring out a promise to write a new blog post on the many ways that yield spread premiums are improperly disclosed by brokers/LOs and how the consumer has been lied to over and over again when asked “what is a YSP?”

    Brokers, the industry group as a whole has misused YSPs. (You might not have so don’t take this personally) Because of this has been an industry-wide problem, YSPs are going to go away as a form of compensation for subprime loans (if HR3915 passes) and your compensation will transform into something new.

    It’s the scary unknown stuff that fuels fear and panic.

    But have any of us considered that the future might be even better than it is now?

  29. I am interested as a historian (rather than a real estate agent) on offering counciling. I am not sure where it was but I think Illinois passed a law that required lenders to offer counciling. This was paid from the lender’s pockets which raised the cost of obtaining loans for people would would otherwise qualify. Do you know anything about this and what impact offering it through HUD may be.

    Links are appreciated for my own research if anyone has any.

  30. OMG Diane, I was JUST thinking about you; no kidding. I think I’m going to write a blog article on the many different ways YSP has been explained to the borrower in a way so that the borrower didn’t know that the money was going to the loan originator.

    I thought to myself; Diane probably has heard some pretty good ones.

  31. Hi DB,

    Consumers were required to obtain counseling from a HUD approved agency if they were receiving a certain type of loan that would trigger predatory lending characteristics. I think you’re right; it was near or in Chicago and it was zip code driven mostly due to the high foreclosure rates in those zip codes.

    Here’s a link. The article is toward the bottom of the page:

    I can’t imagine that counseling from a HUD approved agency would “drive up the cost” of homeownership. Instead, I would imagine the cost might be offset by the consumer learning how to negotiate away some of the junk fees.

  32. Thanks for the link…

    From the article you linked to in your inital blog entry, it sounds like HUD is only going to be providing computers to help consumer compare mortgage options and a staff who will be sitting around doing not much of nothing but there just in case you can convience them to answer your questions!

    — Derek

  33. After reading the actual legislation and it has passed in the house, I’m confident this bill will get the bad apples out. I’ve been in the industry for 7 years and over the past three have seen so many abuses to the consumer and rampid idiocy by LO’s that don’t belong doing this in the first place that it is time for intelligent legislation…it was time three years ago. Let’s see what happens.


  34. jillayne:

    The counseling law in Chicago was a colossal failure. They had to repeal the law because it was obvious it was not working. In fact, most of the residents of the areas affected protested againt the law because it amounted to redlining. You know a law is bad when Rainbow Coalition is protesting against a Democrat imposed law.

    Since it worked so well the first time, the state just signed a new an improved version that will require counseling in all of cook county (of course, non FDIC lenders only) REGARDLESS of FICO scores and income. In effect, the state is now going to be telling millionaires they have to go to credit counseling! It is about to be a massive failure here in the city of Chicago. Even the HUD counselors think it is a bad idea because there is no way they are going to have enough people to handle the volume of loans in the City of Chicago, much less all of Cook County.

    The word on the street is that the law will be amedned before it goes into effect next year though to exclude borrowers of certain FICO scores and probably incomes.

  35. Quick drive by comment from me:

    Diane Cipa’s statement is true. In aggregate, unless you are in the business of closing transactions, you have no idea how much YSP is abused. In the meltdown voice of Jim Cramer…”YOU HAVE NO IDEA! None!”


  36. I thought about Diane’s statement and realized it’s been over 7 years since I’ve sat behind a signing table at an escrow company… a lot has changed since then. We still had our share of bad actors; but I imagine that with all the new programs that came on, it attracted more.

    The positive of this market is that many of the bad actors that came in with dreams of easy money will blow away. We just bought a commuter car last night and the car guy, after snickering about me being in mortgage, stated that many of his coworkers left the car biz to become LOs…guess what…they’re returning to the car biz.

    If the bad actors are gone from a tough market and national licensing; then the abuses should be diminished as well. We really don’t need (or want) the Government telling Americans who can and cannot refinance their mortgage.

  37. Fundamentally, if one group of loan originators has to be licensed and another doesn’t, it is unfair.
    Licensing does not keep out the bad apples, just ask the insurance and stock/bond industries.
    After reading through the legislation, it really does little to help the consumer or hurt mortgage brokers. It is, in fact, only window dressing.
    Apella gives us some interesting things to think about, but I see two years from now there simply being no change in behavior from any of the parties, new law or not.
    Finally, Colleen has put something out there that is well known in the industry, yet no one has the courage to say about affinity groups taking advantage of people like them. The worse abuses I have seen are hispanics on hispanics and black on black LO/Clients. Colleen you are a brave woman.
    For me, since I do little sub-prime work, have a mortgage broker license, yet work for a corespondent lender, the new law, if passed, should not have any good or bad consequences.
    Still, will have lots of folks who got those “great rates” from the 1-800 lenders or internet lenders, that got srewed and are in need of solid financial advice, a well structured loan, at a fair price.
    And I still have developed many satisfied customers that refer me to their family/friends/co-workers.
    I don’t see how this new law will change any of that.
    Nor do I see how this new law will help any consumers????

  38. David, like you, I work for a correspondent lender as well and I’m a licensed loan originator (currently only required by those who work for mortgage brokers). I broker out very few of the the transactions I care for.

    It’s my understanding that although all LOs will be registered, those who work for banks will not have the same requirments for clock hour courses or licensing.

    However there are issues with this bill that will impact broker, banker and correspondent lender such as how this bill is wanting us to factor in the ability to repay. According to the NAMB conference call I participated in today, we are to not only factor in current income of the borrower, but FUTURE income. How are we to know if a borrower is going to face a job loss or have hours cut back a year from application? Some types of jobs are a little more predictible, such as construction; but we don’t have crystal balls.

    I beleive this will hurt consumers who need programs other than full doc. I’ve never been a fan of stated income, but have done some NIV or true no doc loans. These borrowers were qualifed; great credit and down payment. The underwriters decided whether or not the loans worked; they did not have to lie on a loan application about income they do or do not have. Their mortgages are still performing…thankfully they have long term mortgages and are not forced to refinance.

    During these times, we need more products to help consumers; not less. We have FHA on one side offering FHA Secure and we have Congress trying to become mortgage underwriters.

    I’m sure many changes will still take place with HR 3915.

  39. I support the idea of setting better standards for the mortgage broker industry. I only wish it was being done by the most informed people.

    My greatest worry is that the bill has been crafted by “experts” who do not really understand the issues. The writers of the bill seem to be either consumer advocate groups (intent on only saving the people who cannot seem to understand the financial principles they need to understand), the bankers (who wish to wrest away some of the business and profits they lost in the past 5 years to brokers) and the politicians (who probably do not understand the last mortgage they signed, and only want to be seen as doing “something” for the sake of getting re-elected).

    Worse, some of the protections designed to protect the least informed borrowers will end up harming borrowers who are well informed, but who will not fit into cookie cutter loans.

    I have seen the bill, and the markup, and I have not seen enough evidence that the mortgage brokers have been allowed to help shape the bill. If the politicians would seek out the honest loan originators (or better yet, reformed dishonest ones), and ask THEM how their competitors cheat their borrowers, we would have a MUCH better result. After all, the best way to make your software secure is to hire former hackers!

    In many ways, we know that the bill does not do enough to prevent the abuses that we have seen, and will likely continue to see after a bill is passed. If the writers of this bill could effectively demonstrate their understanding of the workings of the lending business, and the real problems that still exist, I would feel much more comfortable having my career in their hands.

    Unfortunately, the mortgage broker industry is woefully underfinanced and poorly represented in the political and public relations war that is being waged right now.

    Those of you that can, try to personally reach out to your Congressperson to show them how we have been benefitting our clients with better loan programs, at lower costs, and providing our customers with greater financial education than they receive elsewhere.

    Please, become informed, and do not stay apathetically silent! And, if you are one of those lucky brokers who have been extraordinarily blessed financially (my blessings seem to be of a different fashion as of late), please pony up and help NAMB work the hallways of Congress to ensure that an intelligent bill is the final result.

  40. Personally, I’m all for any kind of licensing in the mortgage industry as is required in the real estate world. I would love to see predatory lending practices stopped. I’d also like to see (insert Ardell’s favorite word here) transparency in how loan originator’s are paid. Typically when I’m working with buyer clients I end up having to explain to them what their loan officer didn’t cover. Agency law requires agents to show *in writing* what our pay will be – lenders should have to do the same. Most consumers don’t know what “POC” means or “funding fee: correspondent lending” with a dollar amount attached or many of the other terms that may show up on a GFE or a final settlement statement.

  41. Jillayne – I hear you. Great post!

    Tim – We ARE the sausage makers. 😉

    Rhonda – A couple of years ago a car salesman went crazy on us trying to find out how to get into the mortgage brokerage business because he understood it was such an easy way to make money. He switched into a confidential demeanor like we were brother slime – it was really disturbing and weird. If we hadn’t had a hard time finding the car we wanted, we’d have walked out. There are lots of predators still to go….

    I’m with Jillayne. Change always brings opportunity. It’s a scary ride but when you look at it from the other side once you get there, it’s almost always a pleasant surprise.

    The younger good guys amongst us just need to know that we had good livings before YSPs and you’ll have good livings without them. It will be okay.

  42. Diane, I bit my lip hard at one point…it was a long day of haggling with dealers who would not honor their word… when the last dealer, who did actually sell us the car for what they quoted told me about the LOs returning to be car salesmen… it was all I could do to not say “Good!”

    I see a part of whats going on as a major correction. LOs who had no business caring for consumers finances are getting out by choice or force; some programs that were rediculous are no longer the Wall Street flavor of the day; and some people who do not have the skill to manage their finances or credit will no longer be home owners. The subprime market did give many opportunities they would not have otherwise. A majority (it’s reported that 85% of subprime loans are performing) are successful. I feel badly for those who could not change their spending/financial habits or who had circumstances happen and may no longer have the options they need to keep their home. I wrote about this back on Valentines Day of this year: No Love for the Subprime Buyer (or something like that).

    My concern about this bill is the timing of pulling away more products (many are all ready gone) will further squash families who are hanging on to their home ownership dreams.

  43. Hi Readers,

    In comment 38, Russ is showing us a perfect example of why any industry is better off with less government intervention.

    The job of the HUD credit counselors, which we are all paying for in the form of our tax dollars, ought to be done by industry, not government.

    There’s a portion of the law called the Informed Consent Doctrine in which a professional is required to explain in great depth about the service the consumer is purchasing.

    My business partner Kevin Boileau just wrote an article on Informed Consent that will appear in the December issue of the Scotsman Guide. Watch for it and let me know what you think.

    Many, many LOs and other readers have posted comments here saying that it’s up to the consumer to read the loan documents and make their own decision with little required assistance from the LO. If this is your opinion, then please spare me the complaints about government intervention and mandatory HUD counseling.

    If LOs don’t like that, then LOs are the ones that are going to have to step up to the plate and tell the government, “we will be the ones to counsel borrowers.”

  44. David from Comment #42 gives us this statement:

    “I see two years from now there simply being no change in behavior from any of the parties, new law or not.”

    That’s interesting, David. Why do you guess this might be the case?

  45. Hi Rhonda,

    Tell us more about the conference call!

    “NAMB conference call I participated in today, we are to not only factor in current income of the borrower, but FUTURE income. How are we to know if a borrower is going to face a job loss or have hours cut back a year from application? Some types of jobs are a little more predictible, such as construction; but we don’t have crystal balls.”

    When underwriting a loan file, the underwriter looks at the whole employment picture, not just current income. He/she looks at how long the borrower has been at his or her current job, if self-employed, for how long, and the underwriter also considers such things as how much of a salary could the borrower earn on the open job market.

    I see this as going back to solid underwriting and not crystal ball gazing. Nobody can predict the future, not even underwriters, but we can look at the past and get a pretty good idea of what a person might be able to earn.

    Then there are the obvious life changes that may or may not be factored in such as a temporary disability, sudden job loss, and so forth. When you add employment history in with credit history and assets, the ability to predict that a borrower is likely to repay as agreed becomes a much clearer picture.

  46. Roger from Comment #44 says,

    “Worse, some of the protections designed to protect the least informed borrowers will end up harming borrowers who are well informed, but who will not fit into cookie cutter loans.”

    Yes, this is true. When making a rule/law, one of the ways this is done is to try and come up with a rule that will maximize good consequences for the most number of people, and minimize negative consequences for the most number of people.

    That means a (hopefully) small percentage of people will be negatively effected by the rule.

    The capitalist system is such that a new business model could spring forth to create new ways of earning profit on helping just such a group of people. I have faith that this will happen.

    People who can qualify but don’t fit in with the new rule will find mortgage money.

  47. ” If the writers of this bill could effectively demonstrate their understanding of the workings of the lending business, and the real problems that still exist, I would feel much more comfortable having my career in their hands.”

    This is a false dilemma, Roger. We will never have such a world. Government was not designed to be experts in all business industries.

    The mortgage industry (and any industry) is way better off self-regulating than letting government do it. We didn’t learn our lesson when government handed us the TILA and RESPA in the 1970s so here we are once again.

  48. “My concern about this bill is the timing of pulling away more products (many are all ready gone) will further squash families who are hanging on to their home ownership dreams.”

    Hi Rhonda,

    Because the loan programs and products were abused by many people in the industry, they’re going away. They’ll come back when the industry can show government that the industry won’t use the homeowner as an object to maximize their own income without regard for the homeowner’s ability to repay.

    The mortgage industry has no one to blame but itself.

    But now NAMB is trying to blame the government for “taking away” these loan programs.

  49. Why will things not change?
    1. Licensing individuals does not guarantee ethical behavior.
    Series 7 stock brokers still churn individuals accounts
    Insurance salesman still put retired people into deferred variable annuities
    CFP’s still put people into risky investments
    Licensed mortgage folks will still convince people to get into inappropriate loans

    2. Sub-prime has gone away without any help from the government. Does anyone doubt that down the line it will come back? Maybe it will be called someting else, maybe loans will have to be structured differently without YSP. But it will come back and it will be abused. Does anyone know what the foreclosure rate of sub-prime loans was in 2001-2002? Higher than it is now!

    3. Large lenders like Countrywide have business models predicated on heavy advertising of rates, 1-800 numbers, and internet portals. You can only do this by having telemarketers answer the phones and take applications. If they had to use experienced, licensed individuals or heaven forbid required to have face to face interviews, then the cost savings go down the tube as well as their business model. They will have to go back to using retail outlets and mortgage brokers/correspondent lenders. But as of now they will continue to have that business model available to them.

    4. All those folks leaving the business to go back to selling cars will be back during the next boom period.

    The bottom line is that there will always be two competing business models. One, trying to turn mortgages into a commodity sold by folks with no special finance training or experience, competing on rate. While the other model will be a consultive approach with folks who are educated in finance, experienced, and giving the consumer value for their service based on solid, ethical, financial advice.

    Some consumers will always be susceptible to the cheap come-ons over rates and will end up with inappropriate loans, expensive fees, etc. Option Arms are still out there, though slightly better with a 5 year fixed option, but still in my opinion a flawed design. By the way has anyone noticed the commercials for option arms, once ubiquitous, have disappeared?

    So bottom line for me, is that nothing will change in the business.
    I have not been in the business for 20 years like some of you, but have seen the same type of complaints in other businesses and they continue to go about their business the same way, year after year, regardless of legislation.

  50. 1. Licensing individuals does not guarantee ethical behavior.

    2. Subprime will come back and it will be abused.

    3. Large lenders like Countrywide have business models predicated on heavy advertising of rates…
    Because any company, bank or broker, that relies heavily on expensive media advertising will always have to pay their LOs a less desirable commission split, there will always be room for hyperlocal small business owners to compete on service, but the competition will be tougher at the local level.

    4.All those folks leaving the business to go back to selling cars will be back during the next boom period.
    Absolutely; no doubt about it, which is why we must consider raising the barrier to entry NOW.

    “there will always be two competing business models. One, trying to turn mortgages into a commodity sold by folks with no special finance training or experience, competing on rate. While the other model will be a consultive approach with folks who are educated.”

    AGREED! Which is why I’m stumped as to why the broker community would fight the passage of this federal law. There’s a beautiful opportunity here to leapfrog over banks and BE that educate, consultive choice.

    Dave, thanks again for your well-thought out response. I’ve been saying for months now that there are two things that must take place if we’re going to make a difference on the retail origination side:

    1) Define predatory lending and and then stop doing it.
    2) Elevate the relationship between the LO and the consumer from retail status to that of fiduciary.

    HR3915 at least takes a stab at number 1 on my list.

  51. After actually reading what came out of committee, I agree that the broker community has nothing to worry about. What I don’t see is how this stops predatory lending?
    Maybe, my definition of predatory lending is different. I would have a very expansive view of predatory lending that would include, for example, option arms where the consumer could not afford the fully amortizing rate or option arms advertised with a 1% or 2% payment rate. I recognize that there will always be a place for mass advertised mortgages, although I wish steps would be put into place that could control this (face to face interview requirement would be great). If you read the NY Times article on Countrywide lending practices, there can be no doubt that they practiced predatory lending, yet I don’t see how the bill can stop what they did in the future?

    Finally, I have learned that a determined consumer will look around until they find someone to give them the loan they think they want (usually only really shopping the rate), whether it is the best loan for them or not. So I remain doubtful, without totaly reorganizing the way loans are sold, that the consumer can be protected from themselves.

    If I can pimp my own blog for a second, last month I wrote an article on “why so many folks get a raw deal on their mortgages” that I would love your feedback on. It outlines the impossibility of shopping mortgage companies.

  52. Just a word or two about licensing. If you’re reading this great post on a highly regarded blog site, you are likely intelligent and capable. You might not be able to grasp that there are lots of folks out there who can’t get their act together enough to complete a licensing process.

    Licensing sets a minimal standard – a set of hoops to jump through that might seem very easy to you but may be very difficult for the mortgage broker down the street.

    In our office, we have a very simple three stage test all job applicants must pass before being granted an interview. If you don’t pass all three – no interview. The folks who pass can’t believe that was the test and can’t believe anyone would fail. The ones who fail can’t believe we are so concerned about accuracy and think they are entitled to the interview so they can have a chance to sell themselves.

    The three stages test for the ability to read, comprehend and follow instructions – all characteristics vital to good title and closing work. If you pass this test, we give you license to interview.

    Licensing screens out those who at the most basic level, just shouldn’t be in the business – ethical or not. Lay in a base of competency then regulate from there.

  53. Hi Diane,

    I like that idea. My next interview question would be, “explain the purpose of title insurance.”

    One of the interview questions I ask is, “if you thought you had experienced one of our employeess, managers, or me, doing something unethical, what would you do?”

    What they say is irrelevant. Instead, I’m learning about how they process complex dilemmas: Rational, logical, emotional, gut instinct, knee-jerk, judgemental, morally righteous, compassionate?

    I say the bar is still set too low for loan originator licensing:

    No recent felony convictions
    pass an FBI background check
    pass a minimum competency test
    pay a fee.

    HR3915 is proposing minimum required PRE-licensing education, which is SORELY needed in WA state; some states already have mandatory pre-education.

  54. Jillayne, does HR 3915 require education of mortgage bankers in WA state as it would mortgage brokers?

    Minimum is the key word here. It’s my interpertation (another key word) that those who work for bank mortgage companys would only have to be on a national registry. They still would not be held to the same standards as mortgage brokers.

  55. If banks and mortgage brokers are eventually treated differently, personally, I see a HUGE opportunity for the mortgage broker community to differentiate themselves when compared with banks. Brokers can say to the consumer, “we are held to a higher standard than bankers” which would help bring value to the consumer.

    The key will be how they ultimately decide to define the word “loan originator.” Will this mean broker LOs, or ANY LO no matter where they work?

    The bill that passed the finance committee defines LO as ANY LO, no matter where they work, which is exactly what NAMB has been asking for (yet they loudly oppose the bill.)

    States that do not have minimum education standards in place would be required to follow HUD (yet to be created) guidelines. Oh boy.

  56. I view being a Licensed Loan Originator as an advantage over those who are not. I have received some heat for my views from LOs who do not have to meet state standards and who accuse me of wearing my license as a badge…they’re right. It is a badge; one I had to earn.

    Jillayne, it’s my understanding that how the presently stands, there are still differences between banker and broker. Until every residental mortgage originator are held to the same guidelines; the consumer will suffer.

  57. I recently heard Richard Hagar speak. One of the things he mentioned is a state that recently passed a loan originator licensing law. (I think it was Michigan or one of those “upper” cold states) anyway what he indicated is that a large percentage of the mortgage brokers (I think like 15% were felons) and could not get a license. Another (I thought large percentage did not pass the test after two tries)
    Richard could nail down all the facts all I did was get the “gist” of what he said.

  58. Dostoevsky? Fyodor??
    Well it has been a long time since reading him, but I remember enjoying reading his books. 🙂

    My experience and my sociological inclination inform my viewpoint on this issue.

    In other words I doubt that tigers can change their stripes; consumers will still not understand the papers they are signing, some loan officers will behave ethically, while others will not, most loan officers will not go the extra mile to become finance experts, may large lenders will continue to hire anyone with a pulse.

    Florida has a pre-licensing course (24 hours) and licensing operation, yet we are at the center of the foreclosure crisis.
    Of course, only those working for mortgage brokers have to be licensed, the rest do not. But the new potential law is really aimed at mortgage brokers, although my understanding is that if you work for a lender that is not a bank you would have to be licensed.

    Needless to say I wish it were different.

  59. Hi David,

    Yes, Fyodor. The reason I ask is that you named your blog after one of his most famous books, and I thought to myself: what a great idea for a blog: the existentialist perspective on mortgage and real estate.

    If you decide to write your own material, and it is in this vein, please send me an email so I can check it out.

    Now, back to business. I do believe tigers can change their stripes.

    Environmental conditions are crucial.

  60. Hi Nancy,

    Yes, I have heard those statistics too. It was a north east state where a decent percentage of LOs could not pass the exam, no matter how many times they took the exam.

    However, in WA state, we will not have that problem. The pass rate here is very high for LOs: 89% at last report. This means their exam is too easy.

  61. Hi Rhonda,

    “Jillayne, it’s my understanding that how the presently stands, there are still differences between banker and broker. Until every residental mortgage originator are held to the same guidelines; the consumer will suffer.”

    I have mixed feelings about this.

    First, banks and brokers ARE different. To treat them the same would be… a way, unfair.

    Second, an average, random consumer doesn’t know the difference between a banker, a broker, a credit union, and a consumer finance company, so to have an uneven baseline is unfair to an average consumer.

    We have federal law that gives us all the minimum standards (state law can be more strict) however, even under federal law, these entities are treated differently.

    So we must change federal law if we want the playing field to be even in this one area.

    My mixed feelings lead me to a conclusion that it is in the best interest of the mortgage brokers to be treated differently, to be held to a higher standard than bankers, and consumer loan lenders, simply because then they could use this higher standard to survive, thrive and grow their business as a way to differentiate themselves from their competitors.

    Readers, what do you all think?

  62. yeah but where does the regulation stop? The sub prime mess was created by Greenspan and Federal reserve members, sure speculative investors, fraudulent brokers and lenders added to current situation but most of the blame falls back on irresponsible monetary policy. Why should we just, “roll over” and once again allow government to go unchecked. Dems and Reps intrude where they have no right, I bet most of them did not even read the entire Bill.

    Why does being concerned mean we are whining, the principle of the matter is that HR3915 is illegal, there are other reasonable and viable ways to help the consumer and protect the rights of small honest brokers.

  63. Hi Mike,

    Thanks for stopping by RCG.

    “the principle of the matter is that HR3915 is illegal,”

    How so?

    “Why does being concerned mean we are whining'”

    Because HR3915 gives brokers what they say they want: and end to predatory lending and an end to the abuse of YSPs.

  64. Hi Mike,

    The regulation stops when the industry starts self-regulating. This is the best way businesses have found to get the government off your back. But it requires working together, and setting aside (some) self interest for the interest of the whole group, so that, as Rhonda points out, there is a level playing field where we can all compete by playing with the same set of rules, and we all work to hold each other accountable.

    We don’t have that right now, so the government will continue to step in and do the job we all should be doing.

    After this law goes through, then there will be another one, and another one, and another one. UNLESS we can start down the path of self-regulation.

  65. Ok, you surprise me. I picked the title as a goof on myself. I am as far away from the protaganist as possible. My personality is totally rational, pragmatism centered in the enlightment and the scientific method. I could no more write from that emotional, outsider perspective than fly to the moon. Believe me I have tried in my younger days to write fiction from that perspective and failed miserably.
    I also love Freud. Considered “mortgages and its discontents”, but it didn’t seem to work as well. 🙂

    Frankly, didn’t think anyone would get the connection, just thought it was a cool name that indicated some uncommon perspectives.

  66. Hi David,

    With your sociology background, you could do a Freudian analysis of the mortgage broker community’s fear of HR3915. When you’ve written that article, let me know and we’ll give you some superego blog love.

  67. So…thought this would be a good place to post….has anyone heard that Countrywide’s Full Spectrum Lending retail side was amputated this morning? I just confirmed it with a friend of mine who was a Branch Manager.

    It’s real….it’s here….Countryslide, slide, sliding away.

    In other news, Angelo Godzilla just sold 10,000,000$ in his stocks in the past 7 days…

  68. What do you mean, “amputated”?

    All I heard was Soros was buying, but did notice a sharp drop in the stock price this afternoon with volume way up.

  69. Here are some changes made to HR3915 by Barney Frank. Rhonda’s going to like this one because it means we can finance in closing costs, with some caveats:

    “Page 45, strike line 6 and all that follows through line 11 and insert the following new subparagraph:

    `(B) restricting a consumer’s ability to finance, including through rate or principal, any origination fees or costs permitted under this subsection, or the originator’s ability to receive such fees or costs (including compensation) from any person, so long as such fees or costs were fully and clearly disclosed to the consumer earlier in the application process as required by 129A(a)(1)(C)(ii) and do not vary based on the terms of the loan or the consumer’s decision about whether to finance such fees or costs; or’.”


  70. You’re right, Birthday Girl, I do like that closing costs can be financed. People don’t have to finance their closing costs with a refinance; however a majority do. Especially those who are refinancing do reduce their payments. The choice should be the home owners; not Congress. 🙂

    We’ll see what happens with this bill in Senate. How about some School House Rock on how a Bill becomes a Law?

  71. HR3815
    The bill that will ultimately regulate the mortgage industry, has been said to have created fear in the mortgage broker &, Loan Originators. The indusrty because of its lack of rules,regulations, guidelines or ethics, if you will,has run a muck and many home owner have suffered significant damages.

    Now that the light have been turned on, subprime lenders,brokers and loan originators have been caught TAKING a piece of the pie,with very little shame,guilt or remorse. It seems to me that the benefit to consumer,YSP, and steering are among the HOT issues of concern. The “Mortgage Reform and Anti-Predatory Lending Act of 2007” in my opinion it’s all about consumer protection, and one of the best ways to protect the consumer, is to change the way we do business, that’s what HR3915 does. Raising the standard in which loan originators and mortgage brokers do business in the future, thru liscensing,education,,assuring benefit to consumer,disclosure and regulating of the YSP, and confirming the consumers ability to pay, are all good components in the mortgage enviroment.

  72. I love it when people think that they need the federal government to protect them from something, for I know they have bought in on the fear concept. Our government leaders use to operate with honestly, integrity, and the population believed them. Today the government leaders use the fear tactic. They have got to protect us from something. The war in Iraq, we are fighting terrorists there so we will not have to fight them here. Home Land Security developed colors green, yellow, orange and red to tell us how fearful we should be. One man at level orange rapped his entire house in plastic because of fear. We are at a terrorists color level right now but we do not know the color because the government finally realized how stupid it was to announce it over the TV.
    The federal government are masters at calling a law something that it is not, as though it is, until we believe what they have called it. For example “peace keeping rocket

  73. Hi Mickey,

    It sounds like your idea of how to do business is that there should be no rules, no government oversight, no state regulators, we simply let business, capitalisim, and the invisible hand of the free market take control.

    In a way, it can be argued that “no oversight” is exactly what got us into the fine mess we’re in now. There never has been nor will there ever be enough government money to regulate every single LO that writes every single transaction in every single city across the U.S.

    I agree with you in part that capitalism will take over and create new ways of making a profit when market needs are not being met.

    However, I do not agree that we need NO government oversight. Arthur Freidman explained to us all that a corporation’s job is to make money, however he also added “within the bounds of the law.”

    To argue for no laws is to argue for moral chaos, which humans have discovered does not work very well.

    Since none of us are going to change democracy in our lifetime, we need to be able to accept the system we’ve found ourselves in. It may have it’s major flaws, but it’s the hand we’ve been dealt here in America in 2007.

    By the time we’re done with this entire mortgage meltdown, I predict no less than four new federal laws will be on the books, just like during the consumer protection wave of the 1970s that gave us TILA, RESPA, ECOA and the FCRA.

    Yes, more laws will add to the cost of originating a loan. This means businesses will compete to lower the cost to the consumer, which is GOOD for the consumer.

    Mortgage brokers that will survive and thrive are brokers who have FHA approval which includes a compliance, auditing, and education/training division along with a correspondent line of credit with a bank, brokers who have built solid relationships with medium to top producing residential real estate agents, and brokers who have a long history of repeat/referral clients that they have treated very well.

    Perhaps this describes your firm. Either way, thank you for stopping by RCG and I wish you well.

  74. Hey RCG,

    Brother thanks so much for your comments. My concern is not of law or regulations but this HR 3915 law. We are FHA, VA, THDA, USDA, KY housing approved. We are both a banker and mortgage brokerage. We own a real estate firm. And the 10+ years in business have never had a section 32 high cost loan. We do loans only if they make sense for our customers. The result our business has continued at the same production levels whether up or down market. If this law passes we will be a banker only.

    My concern is for the feds to determine underwriting guidelines for other people’s money. The elimination of programs that could effect 30% to 40% of the present home owners and new home buyers. This tightening of credit, means less money in the market place for the consumer to spend on homes, with a drop in demand, present home owners stand to have a massive devaluation of their home values. This will cause financial losses to the consumer. Especially those approaching retirement and contemplating the use of a reverse mortgage. This will not only have a negative effect on the mortgage community but a direct reduction in realtors business.

    I do not want the feds telling me I can not refinance my home for any reason.

    Also, to pre-empt state foreclosure laws and to change fed foreclosure laws that will cause an increase in lender losses that could drive up mortgage insurance cost to all home owners.

    If the federal government is going to reform mortgage laws they should preempt state law, make licensing, education requirements and mortgage laws uniform in all states in-order to reduce costs and to allow consumers in one state the same ability to obtain financing in a different state. Further, if a mortgage company is licensed in their home state they should be able to obtain a license in another state without going through the same federal procedures 49 other times. This Act does not do this.

    The Act should not be allowed to kill the mortgage brokerage industry that brought about creative products to the consumers that needed them at the time to buy a home in the first place that they otherwise could not have qualified for under Fannie Mae or Freddie Mac. If the concern is over what mortgage brokers make, then put reasonable limitations on what they can make so they can continue to operate their businesses and pay their employees. This Act does not do that.

    Anyway, brother I wish you well also. I guess my biggest problem is I have lived long enough to see federal law, whether or not well intended, destroy families and businesses. Abuse is abuse whether from brokers, lenders, banks, or the government. Mick

  75. I agree that loans should produce “Net Tangible Bennefits” for customers, and sometimes you need to educate customers on how to evaluate the bennefit over the cost of a loan, especially for refi loans, which many people often just want to refi without seeing that it costs more to do than just to leave it alone unless it is to their benefits in the long run, and this is when LOs should tell the truth to help them make the right decision.

  76. I agree with Dan. It all boils down to the consumer being educated, and the broker not being allowed to take advantage of the consumers ignorance. Unfortunatley their are bad apples in every part of the industry, I think this Act will weed out the bad ones and hopefully stop them from giving the rest of us a bad name.

  77. I think LO should agree with HR 3915. I think the new licensing requirement will weed out the LO that can’t get licensed or don’t want to bother. Net Tangible Benefits/Ability to Repay is really for the benefit of the consumer. To make sure they really can afford to repay the loan and if they are refinancing, that it is an actual benefit to them not just the LO.

  78. I have no problem with the House bill at all. But Dodd’s bill makes YSP illegal for everything but “no cost loans” which are very rarely in the customer’s best interest.

    Whereas the House bill allows YSP for Prime loans, Dodd’s bill wouldn’t allow that. So instead of using a broker at 5.75% with no points vs a bank at 5.75% for 1.5 points or 6.125% with no points, your only option is to pay the broker an origination fee and take the par rate, say 5.5% for 1 point. What if the borrower is buying and doesn’t have the money for it? They get stuck in the bank’s inferior loan because the bank can earn YSP when they sell the loan to the secondary market in a way the broker cannot.

    The reality is that most home buyers are tight on cash and using the YSP to finance the broker’s compensation (and sometimes part of the closing costs) is critical to help people get into homes at the best terms possible.

    Consider someone with shaky credit but they have 3% down and qualify for an FHA manual underwrite with a 500 credit score, and no bank will touch it. Without YSP is the broker supposed to do this loan for no compensation? The buyer has no money to pay the broker with, and the banks don’t usually do manually underwritten government loans.

    Finally, I’ve seen discussions of making YSP a closing cost credit from the lender and not a paid outside of closing item. Option One always did it that way, as their legal people felt YSP paid POC was a RESPA violation. This makes the broker’s fee much more clear on the HUD but of course it’s too late to shop by then.

    I’m in Florida, where we have to disclose YSP as a specific $ amount on our broker contract and on our GFE up front. We have to redisclose and get it re-signed any time our YSP changes. So if we don’t lock the rate on the day they sign the paperwork, they end up signing those disclosures a minimum of twice. This has had almost no effect on my business or ability to compete with banks, and it’s a level of disclosure that should be considered nationally.

    I have zero problem telling people up front that I’ll make around 1-1.25 points on a typical deal. At that point my rates are lower than the retail banks (matching a retail bank would pay 1.5-2 points normally). Ultimately that is all that matters. If my 30 year fixed rate has lower closing costs, a lower monthly payment, a lower rate, which adds up to a lower APR than some competitor, isn’t that what it’s all about?

  79. HR3915; pass it, the issues are not going away; can’t agree more with “creative mind knows no boundaries”, the name will be changed to something else so that the cycle can start over, rememeber it’s all about the dollar and how to shuffle the deck, investment banks play this game everyday. We’ll have to all hang in there and play our hand as it’s dealt.

  80. Not easy to make a living from YSPs only (not salaried) and now HR3915 is coming down. I can understand the fear and whining from brokers and LOs. On the other hand, it is the right thing to do to support HR3915. Only strong ones will win and survive. It is a tough career decision.

  81. I’ve probably only one one non-agency non-goverment loan in the past 12-18 months. I don’t feel HR3915 will hurt my business. I’m in Florida where we have some of the best disclosure laws in the country already. But the Senate bill that will eliminate compensation totally would be a terrible move. Every prime borrower who gets a better deal then their bank now will be forced to buy the rate down to par even if the break even is beyond their expected time to live in the home, or take the higher rates of a retail bank.

    I can’t imagine the final law that passes will include those rules. Hopefully the House will protect small business and home buyers from such poorly thought out over-reaction.

  82. i agree that ysp’s has been abused, but even with licensing, the people that abused the system will find other ways to put money in their pocket. most of the lo’s i talk to are happy with a total of 1% to 2% per file. on the other hand realtors make an average of 3% per deal. can anybody tell me why the customer and the general public have no problem that the realtor makes 3% per deal and sometimes 6% when they are the listing and sales agent. lo’s get flack if they make 4% on a deal but it is ok for the agent to make 6% ?

  83. No one in the industry should be upset or scared by any of the industry concerns or the new mandatory requirements. I am sure there are more to come.
    YSP has been explained a million different ways. I always ask my clients what they think that it for, just to see what they’ve been told. I too have always had that sick feeling when realizing that banks didn’t have to disclose YSP. I now embrace and use it as my selling tool on using a broker. I simply state that we are required to disclose YSP and by using a bank, “You’ll never know what you paid for”.

  84. Hey Jonathan from FLA:

    I helped a client price out a refi in FLA a while back, and was knocked out of my chair by the title insurance cost.

    Here in WA it would be about $500, plus another $500 or so for the escrow service, but in FLA it was $2,600.

    Do you know why it is so high?

  85. Title companies have a very strong lobby in Florida. And yes, title rates are set by state law (at least here). For new policies it is $575 for the first $100K of coverage and then $5 per $1000 past that. For reissues you can get a discount (about 25%, I don’t recall the precise figure) if you have the prior Owner’s Policy.

    On larger loans title insurance ends up being about the most expensive single line item in Florida.

  86. David, title rates (at least in Washington) are not set by state law. Title companies do have to file their rates and receive approval from the state. However, the state does not dictate what the rates will be.

    Roger, different areas in the country have varying title rates and escrow rates. This is one of the reasons why I stick to lending in Washington state.

  87. The rates in Florida are actually a “minimum” as well. Although I’ve never seen a title company try to charge more than this amount, I’ve seen attorneys charge over $7 per $1000 before.

  88. Thank you for the informative summary of the bill. You are right. There has been a ton of talk about the days of the broker being numbered. That banks have lobbyists for the bill to push out the broker and have all the business to themselves. It is very clear that that’s not the case.

    As long as we are doing business ethically and in the best interest of our borrowers, all this bill does is bring the broker community up to our current standards. It’s sad that the government has to step in and clean up our mess because of a few bad apples. But, just like the dot bomb era, greed can sometimes clean things up.

  89. I think you hit the nail on the head regarding broker fears. What everyone fears the most is the unknown. Brokers and originators, both ethical and unethical, have seen the business model of residential loans change almost overnight and don’t know what to do next. To add to the unrest, the perception is that the slick mortgage “middleman” is the fall guy. This starts the whining you mention and the defensive pushback to any more change, whether needed or not.

    I agree that the proposed legislation is giving brokers a step up on retail banks and plan to use this to my company’s advantage, just as I used the licensing requirement in Washington last year.

  90. I do believe the “unknown” is what people fear most. However if you are one of those mortgage brokers or LO’s that take your prefession very serious, I think you would agree that all the “tightening” up that is occurring in our field, is for the betterment of everyone; the client, the brokers the lenders etc.

    The key is “patience” while going through all these revisions, changes, licensing requirements and bills. Keep in mind that it will be a “new ” and “improved” way of doing business and I do agree that it will give the mortgage brokerages a differentiation from the banks and lenders.

  91. It seems as though the government has decided to really try and regulate this industry and think they know what is best for people from their perspective. In some cases they may be making some good changes, but in many cases it seems like they think they know what is best for others, but in many cases they are clueless. For instance, what if they began telling professional basketball players how they have to train and that is the only acceptable way to do it based on their understanding. As we all should know people only know what they know. Which means most people only know a little bit of what there is to know in this world.

  92. Yes this is what the industry needs. I have been compared (GFE/TIL) with numerous clients and was embarrassed by what fellow LO’s were trying to do to the consumers that paid our own mortgages every month. We would not be this predicament if all in this business weighed out the consequences of their actions. Like you had stated, if I wished not to expose my YSP I should look into becoming a banker.

  93. Yea I agree with the bill it helps eliminate some of the bad practices that mortgage brokers and LO”s get into especially the habit of putting clients in loans that dont make no sense. I am really glad a lot of these rules and regulations is being put into place. Its gonna be so beneficial for everybody so we just have to hang tight and see how it plays out. I have to agree wit one of the guys patience plays a big part in all this. I have a good feeling about all this so we’ll see where it goes.

  94. This all just makes everyone have to put themslves in the shoes of the borrower and REALLY have to do the best for them even if you may lose the loan, you gain a friend and referral. Can be over regulated I suppose.

  95. It’s time has truly come. Past time. These new bills dilver exactly what our industry needed. Having been with a Bank. I like the view from this side. Mortgage Brokering is where it’s at. Just another tool to stand out from the crowd.
    It will surely make us all better.

  96. These bills definitely are what the mortgage industry need. For some these changes may be restricting, but if we do business ethically, then there should be no problem. It’s about time we raise our standards in the industry.

  97. I really don’t see why so many brokers and loan originators are so up in arms over these bills. There has been so much negativity in the media lately over the mortgage mess, let’s find an improved way of doing things. The only thing the bills are stating are things we should already be doing in the industry. Yes, the ethical mortgage personnel are out there but unfortunately there are the bad seeds who hopefully will be weeded out sooner than later!

  98. I like most of the bill. But the Senate bill banning YSP even on A-credit prime loans and VA/FHA loans is going too far. FHA/VA buyers with limited funds can’t pay our fees with cash, YSP is the only way to make those deals work usually. Sure some banks do them but the rates are higher than our rates even with our fee paid by YSP, and few banks will do manual underwrite FHA loans for people with low credit scores.

    If YSP goes away, FHA is going to see a big drop in business from brokers as more people are shut out of the ability to buy a home.

  99. Jonathan-

    It’s a great thought to have everybody in a home, but as we have learned, some shouldn’t have been. We need a little more mean reversion right now.

  100. That’s true for HR3915 but not not S2452, the Senate version of the bill.

    HR3915 is fine, I have no objections to that one. But the Senate version has the same limitations on prime/government loans as well, not just subprime. I can’t believe it’ll end up in the final legislaton that goes to the President one day, but it worries me.

  101. Jillayne:

    I know you are not our paid lobbyist :), but do you want to check out the Senate version?.

    Jonathon, maybe you could post a link?

    It would be a grave injustice to the BORROWERS if YSP were to be eliminated.!


  102. Hi Jonathan,

    You’re right. Senator Dodd I believe, is leading this charge. Thank you for posting the link.

    The latest analysis has it that Dodd and Barney Frank will combine the house and the senate versions, find out what President Bush will sign, and what he won’t, and then vote on a modified version of the combined bills.

    Let’s face it: Yield Spread Premiums have been abused for many years now. It is really too bad if they go away due to the ways that YSP can be used for the good.

    Unfortunately, this seems inevitable. What do you all think?

  103. Jillayne:

    It is only inevitable if lawmakers only talk to bankers!

    Loan originators outnumber bankers.

    YSP can be used to help borrowers, and it will hurt borrowers if it goes away.

    Speak up people! Not just here, but to your representatives.

  104. I agree with you that YSP can be used to help our borrowers. I agree with Jonathon that if YSP goes away, we’ll see a huge decrease in FHA loans. If more loan originators voice this opinion then I would like to believe that our voice will be heard since we do outnumber consumer loan bankers.

  105. I think the fear comes from lack of knowledge over the bill. I had heard and Im sure most can relate that the bill would remove YSP. I almost had a stroke! But seriously this may seem like a dumb question or maybe I missed this in mortgage 101 but wouldnt it be adventagious to all to have your borrower in a prime loan? by lowering your borrowers rate you would make more YSP anyway wouldnt you? I guess you couldnt refi them in six months! I know that YSP is like Oxy Contin While heavily abused some cannot do without it and some borrowers cannot do without YSP. I dont think its going to hurt the originators nearly as much as the borrower.

  106. The Senate bill prevents YSP even on prime loans, so I’m not sure what you were meaning there. Of course prime loans are better. But we still have the issue we can’t do the same no points loans banks do for higher rates, we’d need to charge our fee as a closing cost prime or not.

    I’m trusting the Senate bill will eventually get changed to be more similar to the House bill, so we all stay in business and customers don’t get gouged by the banks by eliminating us. 🙂

  107. I’ve got to say that this was the funniest blog of yours that I’ve read. You called out a lot of people, and I think it’s pretty amazing that the simple changing of the name subprime to nonprime or something to this effect can make the whole bill not apply.
    I think that this legislation only makes things better for the consumer, and if the economy turns around Real Estate agents and Loan Originators will be in a better position. An important part of HR3915 is that it looks in greater detail to whether a borrower truly has the ability to repay the loan. There are way too many people going into foreclosure, and it’s something that I would like to see change.

  108. As a profession, we are better off licensed. The legislation makes it better for the consumer, and for the ethical LO. Common sense should dictate the loans we are originating. The ability to repay the loan should always be something we can justify. I work for a correspondence lender so YSP disclosure is not a factor. When you have the best interest of your client in mind, you will get repeat business, and grow your business slowly, over time. It is this business model that will ultimately keep government intervention out.

  109. HR3915 seems fine, however the Senate version has the same limitations on prime/government loans as well, not just subprime.

  110. I agree with you Jillayne! The only ones who need to truly fear this bill are the mortgage brokers and LOs who have been abusing the system anyways. If you have truly been acting ethically and in the best interests of your clients, then there is nothing in this bill to stop you from continuing to offer the same great services to your clients and make the same money you made before the bill. The abuse of YSPs need to stop somehow, and if this bill can do it, then more power to it.

  111. Again, all the positions needed for checks and balances are in place. At the bank the underwriter will enforce a denial on a loan with no Net Tangible Benefit. Maybe further action should be taken when a bank see’s a Brokerage do this repeatedly? I see a very big grey area after reading the article! I have an idea, why wouldn’t the government adopt a common Mission Statement with a set of Rules that we need to abide by, like the Constitution? We have a common goal, we have a mission to help the people, and we have rules to abide by. If incorporated, I don’t see how anyone left in the business could complain. We’re getting there slowly…

  112. In Post #5 Where Colleen Jane described what happened to her client, when he was taken out of a 30 yr fixed loan, at a good rate. She is right those are the things that make it bad for us all. I don’t oppose hr3915 as such, but I oppose the implication that all brokers and Loan Originators are low life crooks. I say don’t pass laws that make things tough on good hard working business people. Catch the bad guys and punish them to the full extent of the law. I wonder why it is that for every bad act by some one individual, many will suffer. This is not a bad law, what bothers me is that it should not be necessary.

  113. I don’t feel we as brokers need to apologize for making money. I am not or have ever….participated in predatory lending practices. If a borrower does not feel I am worthy of a 1 to 1.5% fee paid on the front end or the back end (and of course, I provide them the education and the option), then they obviously do not see our value and can move on to work with someone at a bank. We as loan originators/brokers do have a choice of where we are most comfortable and all the whining about level playing field does not increase our value. Education, great customer service and a fair fee will differentiate us. People want to do business with people the like and respect! Nothing good is ever free!

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