Monday, November 5, 2007

Congress Vs. Mortgage Brokers: Follow Up on 3915

I am fully confident that this catastrophe of a proposal will be defeated. I believe we are on the verge of reaching critical mass. The petition that I discovered only last Friday has nearly doubled in signatures from 40k to almost 80k over the weekend. It isn't enough though. For Congress to take it seriously it needs to reach more than one million. Here are the particulars again of the bill.

Title 1 will create a federal duty of care and outlaw steering. The anti-steering language will outlaw incentive compensation and YSP that varies with the terms of a loan. The section will allow indirect compensation if disclosed early in the process. This section also creates a minimum licensing standard for all originators and net worth or bond requirements of $100,000.

Title 2 creates an ability to repay standard and hardwires underwriting guidelines. Underwriting will include a verified ability to repay and take into account amortizing payments. Guidelines will also include taxes and insurance payments when calculating ratios. For refinancing, the act will define and require a net tangible benefit. For prime loans, there is a safe harbor. However, for subprime there is assignee liability and expanded rescission rights. Standards will also create a defense to foreclosure. Severe restrictions will be placed upon first-time homebuyer mortgages with negative amortization features.

Title 3 will expand the existing Section 32 of TILA by reducing the points and fees triggers and expand lender liability. Prohibitions include no balloon loans, no lending without regard to ability to repay, prohibit a pattern or practice of making such loans, restrict late fees, and prohibit the financing of any points/fees. Taken together, the expansive liability and prohibited terms and conditions will make Section 32 lending practically impossible.

Now, let's take these one at a time. I have already stated that outlawing Yield Spread Premium (YSP) will end the industry of mortgage brokers and it will. If we are unable to make money from YSP then we will have to charge everything in fees. Keep in mind this law only applies to mortgage brokers. WAMU and other banks are exempt from this law. This gives them a competitive advantage that is impossible to overcome.It really goes beyond that. When has Congress ever regulated someone' s ability to make money. That is what Congress is doing with Title 1. They are telling the mortgage industry how they can and can't make money. This is unprecedented and dangerous.

Title 2 ranges from vague to ludicrous. ALL BANKS ALWAYS count taxes and insurance within their ratios. Thus, this part only makes me scratch my head. As for the rest, well it is vague and what that means is extra paperwork to sign at closing. Anytime, any politician comes up with a vague law vis a vis my industry the practical effect is more paperwork to sign.

Witht Title 3, the pols give their intentions away. They have already outlawed YSP. Now, they want to limit the amount of fees I can charge at closing. Thus, I can't make any money in Yield Spread and I am limited in how much money I can make in fees. There is only one way to read this bill. The politicians have people like me in their cross hairs and they have decided it is politically advantageous to get rid of me altogether.

The ramifications of this are huge. This will not only end the mortgage broker as we know it, but it will devastate everyone that relies on us. Appraisers, realtors, and title companies will all be affected. Wholesale banks will also be devastated. (Wholesale is when a bank goes through a broker whereas retail is when you go to a branch and do your business directly with the bank) Furthermore, everyone that provides us with technology will also be devastated. For instance, I use a company called Calyx Point for all my administrative software needs (pulling credit, filling out the application, and managing my leads and borrowers). They, along with all their competitors, will also be devastated.

Finally, this insidious law DOESN'T apply to banks. In other words, if you go to your local WAMU branch, they don't have to follow any of this. This will mean that retail ends of banks will now have free reign with little or no competition. I have already pointed out the corrosive effect of the cartel nature of the oil companies. The banking industry has similar barriers to entry with a similar number of players.

Anyone who has ever dealt with a bank before for their mortgage has likely felt as though they go on a power trip during the underwriting process. You have probably been asked for a mountain of paperwork and many times asked for mountains more several times over. This will only get worse when the banks know they have no competition. Without mortgage brokers, you, the borrower, will have to be the mortgage broker. I can always pull a loan and go elsewhere, however once a borrower deals with one bank that process is much more difficult. In order to start again, they would have to call around and find another bank willing to do their loan. Then, the process would start again and there would be no guarantee of being treated any better.

Finally, this bill is anti capitalist and totalitarian. What if you owned a restaurant and the government told you what you could and couldn't serve on your menu? What if you owned a radio station and the government told you what songs you could and couldn't play? What if you were a doctor and the government told you how to operate on your patients? That is the equivalent of what this bill does. It sets underwriting guidelines and tells us what we can and can't charge. If Congress succeeds in ending this industry who is next: used car salesman, contractors, insurance agents, or maybe just maybe your industry? This is the sort of thing that happened in the Soviet Union, Venezuela and in Cuba. It isn't supposed to happen in America.

There is one more insidious group that everyone must be aware of. That is the banks themselves. They are all for this law and why wouldn't they be. Their retail divisions would flourish without the nuisance of competition from wholesale once mortgage brokers are eliminated. Here is why they are so insidious. Most of them have wholesale divisions. That is millions of workers: account reps, underwriters, processors, funders, customer service, etc. Those people would be out of jobs. They are willing to sacrifice millions of workers in their wholesale divisions just so that their retail divisions flourish.

Now, what can you do? It is time to name names. There are three main culprits on the House side:Barney Frank(202) 225-5931Brad Miller(202) 225-3032Mel Watt(202) 225-1510. As you can tell, their names and phone numbers are listed. Call them now and tell them and tell them how you feel. Sign the petition at the top. Finally, go here and write your Representative and tell them how you feel. Give them a call and a fax as well.

Finally, let me give a bit of partisanship. As you can see every sponsor on the House side is a Democrat. On the Senate side, Chris Dodd is leading the way. This is something only Democrats could dream up and one reason why I usually vote Republican. This bill is certainly anti American and quite possibly unconstitutional. It certainly impedes on my liberty to make money, and goes against everything that any free market capitalist believes. They do it because it has an appealing populist message. If they aren't demonizing the pharmaceuticals, tax cuts for the rich, free trade, or CEO pay, they find mortgage brokers to demonize. Do we really expect anymore from this party?

This is the party that gave us the Ponzi scheme known as Social Security, the Great Society, Medicare, Medicaid, and welfare. Frankly, just about every bankrupt and bloated government program originated with the Democrats. Currently, they want to bring us mother of all tax hikes, socialized medicine, and they are against every free trade agreement our government tries to develop.

They do it by demonizing. Free trade leads to the export of jobs they say. Greedy pharmaceutical companies make it so that poor folks can't afford drugs. Market health care leads to millions of uninsured they say. CEO's make entirely too much money and that needs to be regulated they say. Now, they say that greedy, evil mortgage brokers caused the mortgage market to collaps and now they need to be eliminated. Their populist message must be countered and exposed and we can start with H.R. 3915.


Here is my email to my Congressman Rahm Emanuel

Congressman, I am a mortgage broker and there is a bill floating through Congress that will devastate my industry. The bill is called H.R. 3915. I fully disclose my industry because I believe that unlike you and your colleagues full disclosure is mandatory. While this bill is dressed up as some sort of antidote to the nebulous term, predatory lending, the reality is that you and your colleagues are looking to put people like me out of business.

The bill outlaws Yield Spread Premium, a means of making money for me. It is frankly unprecedented that Congress should take it upon itself to ban a means of making money for an industry. Furthermore, this bill only applies to mortgage brokers. Retail banks are exempt. That means WAMU, Wells Fargo et al don't have to conform to this bill. As you may or may not know, banks are already exempt from all sorts of regulations that only apply to brokers. For instance, the insidious SB 1167 only applies to brokers. While a broker is forced to have their borrower pay $300 to meet with a counselor, the loan officers at WAMU are exempt. How exactly you folks think this makes sense is a mystery?

What this bill will do is create an unfair advantage that even the best mortgage broker cannot overcome. The industry will crumble. It won't only be mortgage brokers that get devastated, but every industry that relies on them: wholesale lenders, appraisers, realtors, title companies, credit reporting agencies, and technology companies will also be devastated. This bill will put millions of people out of work. I don't know what the intent is but that will be the result.

You have no right to take away my liberty to make money. I have the right to earn a living in an industry without you and your colleagues exhibiting the height of hubris and trying to regulate it out of existence.

If you do not force your colleagues to end the nonsense I will do everything in my power to expose this for the Gestapo, anti capitalist, totalitarian tactics that it is. I hope you understand that you are located in a yuppie area with lots of mortgage brokers who will make you their enemies and recruit their borrowers to make sure you aren't re elected.

Now, it's your turn.

1 comment:

Anonymous said...

HR 3915 has been passed by the House Financial Services Committee. The bill will now proceed to the full House, then Senate to be voted upon before going to the President for signing. Further changes to the bill are expected. A vote is expected next week.

We will be posting information and links on the bill's effect on YSP as we get them:

View the Manager's Amendment Summary:

View Manager's Amendment in Full: