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.

Comments

[Mike Volpe]

I think that the insidious nature of the bill has run its course. We, as an industry, must move the story forward. The next part I believe is to name all the villains behind the bill. I did that with my most recent blog post. If people see the villains they will spring into action against them. I also encourage all mortgage bloggers to look out for blogs that support the bill. It is imperative that you comment on their reasoning. Expose their logic for what it is. Your comments will be there forever so anyone that reads it will know that their perspective is false. Here is my piece.

http://proprietornation.blogspot.com/2007/11/villains-of-hr-3915.html