Congress in their attempt to help those who have found themselves in bad loans are going after what they believe to be the culprit, mortgage brokers. They have this misguided sense that we are Snidely Whiplash and after the money of every unsuspecting homeowner. I guess this makes Congress Dudley Do-right coming to rescue Nell. The Bankers, who used to be seen in this role have helped perpetrate this myth. Even though they supply us with our products, we are to blame. Go figure.
Anyway, back to the Bill.
The 2 main components that I disagree with are the attempt to eliminate Yield Spread and Stated Income.
This post will focus on Yield Spread. I'll try to touch on why abolishing Stated Income Loans is discrimination against small business owners later.
Yield Spread- For those who do not know, Yield Spread (YSP) is a % of the loan that the lender pays a mortgage broker to sell the loan at a slightly higher rate. We can also charge points to the borrower to get them a slightly lower rate. This allows us to help place our clients in the loan structure best suited for their situation.
The problem with this bill is that it doesn't recognize how rate sheets work, or how private enterprise works. Every product has a wholesale and retail price. Our rate sheets allow us some control of what that Retail Price will look like. We also have many lenders to choose form to help us determine what wholesale price we want to buy at. Consumers do not have to do business with us. They can choose to go to another lender.
I get paid 1 of 3 ways. I usually make 1-2% of the loan amount. I'm cheap compared to many of my associates in the industry.
- Origination Fee
- Yield Spread
- A Combination of the Two
Often it makes sense for a borrower to pay higher closing costs and for me to increase my Origination Fee in order to get them the best rate possible. If they are planning on being in the home for many years then it averages out in their favor, usually after 2-5 years.
However, if a client is only going to be in their home for a few years then a higher rate and lower closing costs makes more sense. Also, there are times when the only way that I can make a deal work due to payoffs, equity or contractual seller concessions, is to lower my fee and charge a higher rate.
Yield Spread is a tool that when used properly, helps a professional mortgage planner best serve his client. When used improperly it can gouge a client.
The problem? Banks and Corespondent Lenders don't have to disclose YSP and will probably slide under the radar EVEN THOUGH THEY ALSO USE IT.
Without Yield Spread:
- We will have government controlled rates
- Closing costs will increase 1-2%
My Solution? Reduce the allowable compensation that any originator can make, whether broker, loan officer, bank employee or mortgage banker to 3-4% from all sources. This is more then fair, and significantly below current caps.
Congress gave us our caps and now are saying that we are at fault for using them. Shame on you Congress!!
If you agree please write to representative today!!
You can go here to look up and contact your representative. Just plug in your state and zip code and it populates your representative:
Larry Morris is a loan Officer with American Nationwide Mortgage in Newberg, Oregon. He specializes in relocations and Sherwood, Oregon neighborhoods and Yamhill County. He is a Board Member of the Sherwood Chamber of Commerce.He can be reached at larry@PDX-Mortgage.com. His website is http://www.pdx-mortgage.com/. This material is copy protected 2007 by Larry Morris, Mortgage News that Matters.
Licensed in: OR, WA,
Larry Morris is a Certified Mortgage Planning Specialist and Certified Mortgage Coach with Golf Savings Bank in Beaverton, Oregon. He specializes in USDA Guaranteed Rural Home Loans, FHA Purchase and Refinance, FHA 203k Rehab loans, FannieMae HomePath loans and conforming purchase and refinances in the states of Oregon, Washington, Idaho and California.
He can be reached at 503-421-0096, or larry@PDX-Mortgage.com.
Paul - It really could affect us more than anyone realizes.
Larry, thanks for writing this post. All loan officers need to work together to make sure this bill never gets passed. Its everything un-american and ruins competition. I mean I would love to see competition go away, but NOT this way. In my years in this business, I will share that there are Bad Banks and Brokers and Great Banks and Brokers. Usually it comes down to the individual the consumer is dealing with. Lets all work together to defeat this bill.
PS. I wrote to my congressman.