If House Bill 3915 Passes, Find a New Career!
This posting on House of Representatives Bill 3915 was postred on “The Mortgage Insider” site on Active Rain. The author is Rey Gallegos of 5 Star Mortgage in Henderson Nevada. This post is reprinted with his permission.
If House Bill 3915 Passes, Find a New Career!
The US House of Representatives is considering a bill that would Legislate Underwriting Guidelines into Law and outlaw Yield Spread Premium. The bill came out last week and the US House Financial & Services Committee will vote on Tuesday, November 6th, 2007. Let’s be clear, THIS BILL EFFECTS THE ENTIRE REAL ESTATE AND MORTGAGE INDUSTRY AS A WHOLE, Real Estate Agents, Mortgage Brokers AND Mortgage Bankers! On October 30, 2007, I received an email from The National Association of Mortgage Brokers regarding this bill. HR 3915 The Mortgage Reform and Anti-Predatory Lending Act of 2007was introduced by House Financial Services Committee Chairman Barney Frank (D-MA), along with Representatives Miller (D-NC) and Watt (D-NC). This morning I was on a nationwide conference call regarding the effects HR 3915 will have on our industry. After this conference call, and reviewing the bill, all 66 pages of it, I applaud the efforts of the congressman. Their intent is noble in a lot of areas! I have always said that the benefit of our current Mortgage and Real Estate crises is that it will bring about much needed reform. However, there are some items in the bill that will effectively raise Interest Rates almost immediately, all but ELIMINATE MORTGAGE BROKERS, and dramatically reduce banks abilities to practice in a free market and in fact actually hurt consumers instead of helping them. I will break it down.
The Pros of this legislation:
- The bill would require criminal background checks, testing to demonstrate basic knowledge of loan products and continuing education and professional ethics training for all who originate mortgage loans.
- It would also require loan originators to provide a simple, straight-forward disclosure of their role in the mortgage transaction, including all fees and other sources of compensation, and to do so at the onset of the process.
- The establishment of a national registry if it is governed by a federal agency such as the Federal Trade Commission, it includes every individual mortgage originator (including loan officers working for federal- and state-chartered banks and lenders, credit unions and mortgage brokers)
- It will eliminate special incentives paid by lenders to mortgage originators who sell particular loan products i.e. Hefty YSP or rebates for Option ARM’s. In other words, some loans are more profitable for Lenders so they place extra Yield Spread Premium (YSP) on them so that Loan Officers sell those loans as opposed to other loan products. This is a practice that I have always been against so HOO RAY! for this piece of it!
The Cons of this legislation:
- The bill will create a Federal Duty of care and outlaw steering. This doesn’t sound like a bad thing BUT the anti-steering language will outlaw incentive compensation and Yield Spread Premium (YSP) that allows Brokers and Bankers to be competitive.
- It would require all originators to have a minimum net worth or bond requirements of $100,000. Aside from the fact that many originators would not qualify with a net worth of 100k, the bond requirements would effectively eliminate many originators due to the expense to carry this type of bond. In addition, this would create a run of litigation on future loans strictly because consumers would know the bond and/or net worth is there.
- This bill would legislate “STRICT UNDERWRITING STANDARDS”. This means that every loan will have to fit into a perfect box that many homeowners and potential homeowners DO NOT fit into. Also, with set underwriting standards this will basically eliminate the free market in respect to Mortgages. As NAMB President Elect Hanzimanolis stated, “We need to have confidence in the market’s ability to correct itself. Further restrictions through legislation will cripple the industry, and will adversely affect the very people we’re trying to help.”
- Borrower’s will no longer be able to finance closing costs. So basically, if you are going to refinance your house, you will have to pay ALL closing costs out of pocket. For instance, if average loan closing costs were 2 to 3% of the loan amount and if the average refinance loan amount was $200,000, you would have to come out of pocket with 4,000 to 6,000 to refinance your home.
What does this all mean:
- First, Mortgage Brokers would be put out of business. The enormous cost of bond requirements and additional liability would be too much for most Mortgage Brokers to stay in business. Those that could afford the cost would have limited profitability because of the elimination of YSP. This would force most all Mortgage Brokers to cease operations.
- Without Mortgage Brokers, borrowers would have little ability to “shop” for a more competitive rate and loan program. In essence, it would create a monopoly for Mortgage Bankers.
- Even-though Mortgage Bankers would have little competition they ALSO could not benefit from YSP. In order to be profitable, they would have to depend on shear volume which would drastically reduce the level of Customer Service! This would favor the larger Mortgage Banks like Chase, Countrywide, etc. as they have more employees to handle the volume.
- With standardized underwriting there would be no difference between a large Mortgage Bank and a small Mortgage Bank with the exception of rate. Because of the ability for the larger banks to operate at a higher volume this would eliminate the ability for the smaller Mortgage Bankers to compete. This would further create a monopoly for the larger Mortgage Banks.
- In addition, standardized underwriting would limit the ability for “exceptions” to be made in underwriting files. For anyone who has been in the industry, for any amount of time, you know that there are exceptions in virtually every loan file. Standardized underwriting means there are little to no exceptions that can be made. Without an individuals ability to get an exception this would further decline the number of qualified buyers and people qualified to refinance their homes.
- Less home sales means Real Estate Agents and Brokers are competing over a smaller piece of the pie.
I could go on from there but I am sure you get the picture! Here you will find a Summary HR 3915 along with the Full Bill HR 3915. You can also sign an online petition to vote NO for HR 3915. Although this legislation is a direct attack on Mortgage Brokers, it will end up affecting every piece of both the Mortgage and Real Estate Industry. I urge you to act! On Friday, I will have more information about how you can contact your congressman in regard to HR 3915. Your mortgage partner for life,
Senior Loan Officer Five Star Mortgage
My website: www.4NevadaHomeLoans.com My Mortgage Blog: The Mortgage Insider Your complete community mortgage broker
Proud Member National Association of Mortgage Brokers
© Copyright, 2007. Rey Gallegos, All Rights Reserved.
