Florida Mortgage Report

Call to Action by the NAMB

This is a little late, but I was overwhelmed yesterday (about 150 - 200 emails behind and needed to provide responses to them).  Anyhow, for those of you following the mortgage reform laws running through the Senate and the House, while the House's version past that was reasonable, the Senate's version is not.

So, below is what the National Association of Mortgage Brokers has asked its members to write to their Senators:

"To: All NAMB Members and National Briefing Participants

From:  Denise Leonard, NAMB Government Affairs Chair

RE:  Call to Action – “Home Ownership Preservation and Protection Act of 2007"

Thank you for participating in the national briefing today on Sen. Christopher Dodd’s (D-CT) proposed mortgage reform bill, S. 2452, the “Home Ownership Preservation and Protection Act of 2007.”  Please contact your Senator immediately and voice your opposition to the bill.

Phone Number to Senate:  202-224-3121. This is a general number that will connect you with an operator.  Ask the operator to be connected with your Senator. 

Web Address: Visit http://capwiz.com/namb/home/ and enter your state or zip code to find your Senator’s contact information. 

One of the most effective grassroots tools is a personal call from you to your Senator’s office that expresses your personal beliefs and or experiences related to the bill.  Below are very generic talking points for you to call your Senators office.  Please use them to develop your own more specific talking points regarding the bill. 

Senator Dodd proposed the mortgage reform bill, S. 2452.

1. I oppose this bill. 
2. It disadvantages small business.
3. It outlaws the way we get paid.
4. It forces us to send customers away from our business and down the street to the big banks.

It will make the housing depression worse – hurting rather than helping."

Once again, this is from the NAMB and does not necessarily reflect my own position entirely.  However, one point to be reiterated that the Senate's version opposes is that of YSP.  To read my take on it, read the following posts:

Is Yield Spread Premium Good or Bad for Consumers?
"Homeownership Preservation and Protection Act of 2007"

HR3915 Passes House, Set to Go Quickly to Senate

Lawmakers voted 291-127 to approve new rules for borrowing standards, predatory lending and nationwide broker licensing.  As is typical, both parties offer opposing viewpoints.

Democrats argue that the bill would help stamp out abuses and preserve lending to people with weaker credit.

Some Republicans and the White House contend that the bill could wind up restricting credit and actually worsen the housing crunch.  Even the White House has concerns and issued this statement..."The administration has concerns with the bill as drafted because it includes provisions that unduly restrict access to credit for potential homebuyers and reduce refinancing opportunities for current homeowners."

As I obtain more details on the updated bill, I will add my own opinion. 

Is Yield Spread Premium Good or Bad for Consumers?

There is much talk about the fact Yield Spread Premiums (YSP) should be illegal, and rightfully so based on the fact many mortgage brokers used this "hidden cost" to rip off the consumer.  However, most do not.

YSP is actually very beneficial to many consumers, and I support full disclosure of how much a mortgage broker makes.  I also support full disclosure on how much a lender or bank stands to make since they do make undisclosed amounts of money creating an illusion you are getting a better deal sometimes through the bank or lender. 

APR (annual Percentage Rate), which is widely accepted for comparing loan costs, is not an adequate gauge due to limitations and ability to be manipulated, thus true comparisons cannot be guaranteed.

HR 3915 is about to hit the House floor and looks as though the YSP issue has been resolved to a great extent, however, I still see a lot of "exemptions".  This is my proposal, no matter who does the loan, the amount the company, not the originator or mortgage broker themselves, makes should be disclosed.

See, loan originators at the bank will say things like they get paid based on volume or they do not make as much as mortgage brokers.  That is true, however, that does not mean the bank or lender aren't making as much either. 

The mortgage broker needs to disclose all monies being paid to their company, whether YSP or not, at least here in Florida.  As of October 1, 2007, that disclosure has to be in a dollar amount (maximum) at the time of application.  Banks and lenders do not need to do the same as they are exempt, therefore creating an illusion that they are cheaper.

Now, back to the real question, is YSP good for the consumer? 

The answer is yes, but you must be dealing with an ethical mortgage broker to receive the benefit.  YSP is simply a payment for increasing the rate on the loan in order to cover costs OR pay the mortgage broker.  If you decide to pay the mortgage broker in "cash at closing", then there is no YSP and you receive what is called the "par rate" on the wholesale side of lending.  Of course, that means you have to pay all the other closing costs at closing in cash to close as well to receive that rate.

Now, what if you have little or no cash for the closing, or need to reduce cash at closing to maximize down payment for the loan?

Simple, the mortgage broker then increases the rate, thus gaining money for closing costs in the form of YSP.  That money can be used to cover his charges, his charges plus other closing costs, or even the entire amount of closing costs, depending on the YSP received and the rate.

An ethical mortgage broker should agree to how much he/she makes during the application and initial disclosure process.  That amount should not change (except lower) unless mutually agreed upon.  Also during the initial application phase, how the costs are to be paid, whether cash or YSP or combination, should be addressed so that everyone is on the same page and no surprises come at closing.

Remember also, that until the rate is locked, how the costs are covered is "floating" as well as the rate.  The reason is that pricing changes daily, sometimes several times per day.  With each price change, while the rate may not change, the amount of YSP changes, so there may be less money for closing costs, or there could be a "surplus" which the broker should "give back" at closing.

I hope this quick overview of YSP and how it actually helps the consumer addresses some of your concerns over the subject.  The key to YSP providing a benefit rests in the need to find an ethical mortgage broker.  Make sure that your Congressman knows this as HR3915 moves quickly throw Congress as the only limitations on YSP should be full disclosure and eliminating "exempt" entities.  All should be able to compete on an even playing field so you, the consumer, can benefit.

HR 3915: Mortgage Reform That Aims to Screw the Consumer

Yes, the misunderstand ramifications of a overreacting politician and his well intentioned buddies can in fact do the exact opposite of what was intended.  Such is the case HR 3915, Mortgage Reform and Anti-Predatory Lending Act of 2007 (though being amended somewhat).

While I am for more licensing requirements across the board, including those currently exempt (such as the banks and their employees), the proposal still takes things too far and will ultimately hurt the consumer.

There are some good points in the bill, and it has been watered down a bit to eliminate some consumer harm, yet there is still vagueness plaguing the bill.  Things like "must provide tangible benefit" are left open ended.  Who determines this?  Who is better at determining it, a mortgage planner or a politician?

There are also issues regarding Title III of the bill that will adversely affect consumers' ability to obtain mortgage financing.

Brian Brady has been very vocal in his blogging and hits a lot of good points.  His latest post on Bloodhound Blog links nicely to his previous posts, so read up  on his take. 

The bottom line is that the bill, even in its current form, will still do more harm than good.

(Update:  HR3915 is scheduled for the House floor Thursday, Nov. 15)

Will You Survive the Current Mortgage and Real Estate Crisis?

With all of the turmoil in the marketplace today and with the government doing their best to screw things up further, it begs to question whether or not anyone will be in business in the future, or simply think it is worth it.

Chances are, when the dust from the implosion of the industry settles, things will have changed, mostly for the better, certainly more regulated.  Being optimistic that the government won't overdue it (I know that is a stretch, but humor me), I plan on being around for the long haul, will you?

I have not been in business long enough to go through "valleys" like this, but I know one thing, persistence pays.  It also is at times like these that we can grow and become even better at what we do.  Owning your own business, like I do, flexibility and adaptation are essential to ride the waves of change and keep your head up.

So, to all of you wondering if the government will force you out or that it may not behoove you to stay in this business, I say leave!  It will make life easier for me!

Just kidding.  I challenge you to take a stand and hold your ground against the tidal waves of change that seem unending.  Take on the mountains that seem too high for you to climb and break through those barricades that keep holding you back.

This "era" is the time and this industry is the place for you to decide if you can face that challenge and succeed, or if failure will get the upper hand (and you will be an alien).

Elephants Versus 'Asses on the Mortgage Crisis

Generally, I keep politics off my blog, but here is where the differing political views need to be expressed.  Democrats (donkeys - aka 'asses) and Republicans (elephants) have opposing views on the subject of government intervention as it relates to the mortgage crisis, not surprising.  Democrats, unfortunately, are currently winning the battle, having gotten approval to send HR3915 to the House floor for a vote, a proposal which shows the government going overboard and creating a "more harm than good" solution.

In general, Democrats call for more aggressive government action while Republicans warned that too much intervention could create perverse rewards for financial institutions and irresponsible homeowners.  Sorry, but we have to agree with the Republicans on this one and you should too.  More often than not, too much government intervention leads to disaster and the need to undue what was done down the road.  This may even be the case in the recent Fed rate cuts as we are already seeing signs of economic disaster potential down the road.

It can be argued that the same irresponsible homeowners that have used their homes as another ATM machine, instead of using their equity wisely, will create yet another credit crunch in a couple of years due to their maximization of credit card use and their inability to pay that in the future.

So, look for the politicians to provide numerous "solutions" in the future in the quest for your vote.  Depending on your viewpoint, you may want to switch parties.  Just remember that over-regulation or under-regulation could spell disaster in the future.

Countrywide Joins Attacks on Mortgage Brokers

In a continuing saga of Countrywide's troubles and how they, as the "leader" in the mortgage industry, are dealing with it, Countrywide has decided to halt some of their types of loans, namely some loans originated by mortgage brokers.

Countrywide announced it will stop accepting "custom construction" loan applications from mortgage brokers because of the current mortgage mortgage market environment.  These types of loans are used to facilitate building of new homes, potentially further eroding new home sales.

This is the latest in a long list of "attacks" on mortgage brokers, singling mortgage brokers out as a root cause of all the problems in the mortgage industry.  It is important to remember that mortgage brokers do not set guidelines, not even on compensation packages such as Yield Spread Premiums (YSP) on any type of loan.  Yes, there are many mortgage brokers (as well as loan originators at banks and lenders) that have "steered" borrowers into loan programs that homeowners should not have been in solely to get paid more.  They are the minority however, except maybe in South Florida. 

So, why is all the blame focusing on mortgage brokers.  Easy, we are mostly small businesses and have little or no capability of fighting back.  We are an easy scapegoat and with everyone from the homeowner to Congress believing we are the cause of the mortgage meltdown, how can we possibly be the best thing out there for the consumer.

Take a closer look though and you will see that if mortgage brokers are eliminated, competition is reduced and the costs to consumers will ultimately go higher, something banks and lenders would love to have happen.  Why?  They need the money to survive their greedy and risky behaviors.  They are the reason for the meltdown.  Well, them and the homeowners.

Yes, you heard me right, homeowners are also to blame.  Many of the homes being foreclosed on and these so-called risky loans are being blamed for, come about because of the ineptitude of the property owner to seek proper financing and develop a mortgage plan. 

Many homes are investors looking for flipping the house that turned into flops due to the downturn.  They didn't care if the mortgage was at 10% or higher, or even carried prepayment penalties as they were going to make huge profits and quickly.  Now they are upside down, unable to escape and are desperately looking to blame others for their own flaws.  That is, of course, the American way.

Other homeowners who desperately wanted their own home and would do anything to get it, even taking risky loans they had no business being in in order to qualify for a larger home, thinking nothing could go wrong.  Sure some brokers, and don't forget LOs, didn't explain the programs thoroughly , but how gullible is the typical homeowner?  Did they really believe they could get a 1% interest rate when the going rate was 6% or more?  If they are that gullible, maybe they deserve to lose their home.

A small percentage of mortgage brokers, unethical to say the least, did contribute, but punishing all, or outright elimination through regulation or lenders "cutting them off" is going to create much more problems than offer assistance.

HR 3915 Gets OK from House Panel - Be Afraid, Be Very Afraid

I had been mostly silent during the time period this bill was being prepared for vote.  I did post today on some of the issues within the bill and the real reason I am against it, which is that ultimately it will do more harm than good for the consumer.

Well, the bill is now set to go to the House for a vote and then move its way over to the Senate and finally to the President.  Chances are it will be amended along the way, which we hope will be the case to make the law more consumer friendly.

While there are some issues that I, as a mortgage broker, do not like, they are my issues alone and some of the requirements will actually be welcomed by many of us (hey, any way we can eliminate competition and drive prices up is a good thing for us).  There are issues that you, as a consumer, should be afraid of though.

The CMPS Institute (where Certified Mortgage Planning Specialist {CMPS} designation comes from) created their own proposal which you can view here.  I must admit this seems to be the best proposal yet, though even it could use some additions as it falls a little short.  At least it would be the best starting point for what is out there.

Here are some of the dangers you should be afraid of if HR3915, The Mortgage Reform and Predatory Lending Act of 2007, goes through as is...

1. Elimination of Yield Spread Premiums (YSPs) - Mortgage brokers make their living through commissions they earn from the wholesale lenders to whom they broker loans. These commissions are called yield spread premiums (YSPs) and are in most cases fully consistent with the commission schedules that are used by bank loan officers. However, brokers tend to have more latitude than bank loan officers in pricing their loans. This can be very beneficial to consumers as brokers can sometimes be more flexible than bankers in terms of pricing out various point and interest rate scenarios on many loan programs. One loan program that would be virtually outlawed under this proposal would be the no-cost refinance where the broker uses their YSP to pay the borrower’s closing costs. The very clause that is intended to protect consumers would result in harming them and increasing their refinancing costs.
2. Fiduciary Responsibility, Suitability Standards and/or “Net Tangible Benefit” Requirements - Proposals that call for requiring a federal fiduciary standard for mortgage originators or a “net tangible benefit” requirement for mortgage loans are impractical for the most part and will result in costly and unnecessary litigation within the mortgage industry. Secondary market investors would refuse to buy and securitize loans, bankers would refuse to issue loans, and brokers would refuse to originate loans – all out of fear that the consumer will come back and say, “You shouldn’t have sold me the loan in the first place.”  Furthermore, a federally-mandated standard would put the government firmly in the driver’s seat when determining which loans are suitable for consumers. It would be much better to allow consumers to make their own personal financial choices without government interference. Rather than imposing a federally-mandated “net tangible benefit” requirement with no practical way of enforcement, a better solution would be to implement the three guidelines proposed in this policy statement.
3. Legislating Underwriting Guidelines - Proposals that call for federally-mandated underwriting guidelines will greatly limit market-based innovation and snuff out many of the financial choices available to consumers. One of the greatest benefits of living in the US is the myriad choices we have when it comes to investments, homeownership, lifestyle, etc. Government-decreed lending guidelines are not consistent with the personal freedoms inherent in the American way of life. Rather than jumping into the mortgage business, governments should simply require the industry to act in a responsible manner by implementing the three guidelines proposed in this policy statement.

Additionally, more mortgage professionals will likely leave the profession, reducing competition and allowing those remaining to drive costs higher.  So, ultimately, the American homeowner loses.

Watch the HR3915 Debate Live

If you are interested in hearing the House FInancial Services Committee live webcast, click here (launches Windows Media Player)

HR3915: Has the House Hit the Panic Button Too?

You have probably been reading a lot of news and commentary over the recently introduced HR3915 bill, also known as "Mortgage Reform and Anti-Predatory Lending Act of 2007."  I have been busy flying and had decided not to add any input on this bill other than my previous post which I made even before the bill had a name. (See Barney Frank or Barney Fife? Who is better at Regulating Things?)

Well, the bill is scheduled to be reviewed by the House today, or at least soon, so I want to update you all on why this bill will destroy the industry, and ultimately harm the consumer.  That's right, many aspects of the bill can, and will, cause financial harm to the consumer.

Brian Brady hits many of the dangers associated with the bill.  He also goes into the minds of the enablers.  There are several others, but I think final issues if the bill is passed is summed up in Brian's ending statement:

"95% of the American public will suffer for the greed of the fleckless few."

I posted about the Citizens for Financial Responsibility's petition and wrote how the writers just don't understand the bigger picture.  Brian, in the second post highlights the letter the Center for Responsible Lender wants you to write in support of HR3915.

Even an editorial in the Times Digest (on my hotel door) pushes to get this harmful bill past and the writer proves his own ignorance of the potential damage the bill will cause.

While there has been some research and education on what needs to be done to eliminate "predatory lending" and other abusive practices, there is yet to be a bill introduced that "makes sense". 

Why do I dislike the bill?

I do not care if more regulation is added and I am not even worried about "suitability" issues.  I do not even care if I go out of business because of the bill, although I doubt that will happen as I will probably get more business due to less competition.  Catch the last part of the last sentence?  That's right, less competition and that means more cost to the consumer.  I dislike the bill because it will ultimately be harmful to the consumer.