Tuesday, November 6, 2007

The Politics of H.R. 3915

The likely political ramifications of this bill are probably none. I firmly believe that this bill will ultimately die a slow and terrible death however given the ineptitude of both parties, neither one will be able to use it to their advantage. Currently, the push back to this bill is reaching critical mass. The petition is up to nearly one hundred thousand signatures (more than double from last Friday). It is certainly by far the most popular topic this blog has every had. It has had a warm and passionate reception wherever I have presented it, and frankly once the industry is fully made aware of the bill we will push back and push back hard.

What will happen when every realtor, appraiser, title company, wholesale lender and most importantly borrower hears about this bill? We will reach critical mass that is what. Once that happens the bill will be pulled however it isn't enough. Brad Miller (D NC), Mel Watt (D NC), and Barney Frank (D MA) have shown me that they are not qualified to be legislators anymore.
They are the epitome of everything that is wrong with today's Congress. They are either too naive to realize the mess they will make or they show the height of political opportunism and hubris and creating a bill whose only purpose is to eliminate an entire industry through regulation. They believe that they can create a populist message that will pit them on the same side of poor borrowers against greedy despicable mortgage brokers. It is a common sales technique that I employ myself when I get on the same side of the table with my borrowers against the banks. It is a technique that can work only if the Republicans in Congress let it.
Again, this bill eliminates Yield Spread Premium (YSP). YSP is what the bank for the rate embedded in the loan. The higher the rate of course the bigger the YSP. These three want to eliminate YSP altogether as an option for mortgage brokers. Thus, the only way that a mortgage broker could make money is by charging extra fees or points. The inisidious part of the law again is that it only applies to brokers not banks. This gives banks an advantage that no broker could overcome. Here is how a fellow mortgage broker commented on it in my previous post.

I am a broker and the elimination of yield spread premium is the equivalent to Lowes or Home Depot adding no mark-up to me for tools or household goods in excess of their costs from the venders supplying them with these products. YSP embodies the very concept by which our economy is built, across the board for all industries in retail or wholesale. Why stop at mortgage originators, when we can just ask consumers to pay costs at all retail chains, with no regard to what ex. above, Lowes or Home Depot has to pay in expenses for location in order to make available the products that we need?

The fact of the matter is, the predatory lending percentage cap of 5 is the fail safe already put in place to govern this sort of inflation. It would only make sense to lower this cap across the board to 4 or even 3 halves, rather than another "knee jerk" reaction to loan defaults, which will ultimately clean the market out, by taking out the compensation methods allowing people to be experts in their respective industries.

The snow ball effect will be less available loans for lenders whom rely on the brokers spread out nationwide to feed loans to service with-out the overhead of branches etc.. When there are less loans available, there will be less borrowers. When there are less borrowers, there will be less sold homes. When there are less sold homes, there will be much less appreciation, making it increasingly less likely for the holder of a mortgage, to recoup the liability left behind by foreclosure's. Shall I continue? Great bill, they really put a lot of thought into that one!

He is absolutely right on all counts however there is one thing that he left out. Millions of borrowers have benefited from YSP and they don't even know it. I just closed a loan for a borrower that saved them over one hundred dollars a month in payments and I paid for all of the closing costs. I did this because they plan on selling their home within a year. It makes no sense for them to pay for any costs if they are going to sell in that time frame, however this way they enjoy healthy savings and pay no needless costs. I was able to do this because of YSP. There are millions of such borrowers out there who benefitted from the use of YSP. They just need to be made aware of how they benefitted and what this bill plans on doing. My own borrower happily not only signed this petition but emailed their story to their Representative.
The pols pushing this bill are counting on people not understanding the specifics of the loan. They are counting on people seeing this as a punishment to mortgage brokers who many blame for the mortgage crisis. Most folks already have first hand knowledge of how this bill would negatively affect them they just don't know it. If the Reps merely educate the public on the specifics of the bill, the bill, its sponsors, and its sponsoring party will be exposed.
There are millions such folks out there and the industry will get the word to them. That will almost certainly be enough to kill the bill however the industry isn't going to do the politicians dirty work. If the Reps want to make political hay out of this bill, all they need is a bit of political cajones, mortgage knowledge, and media savvy. We all remember Graeme Frost. The Democrats put him up to plead with the President to approve the Dem's version of SCHIP. The politics of the matter worked and every poll says so. The Reps can do something very similar with H.R. 3915. Humor me for a minute as my borrower tells her story without using her name of course.

I wanted to have your attention and tell you my story because I have first hand knowledge with Yield Spread Premium. Currently, a number of Democrats are trying to propose a bill that will eliminate my mortgage broker's ability to charge me YSP. While this sounds like a good idea, I have first hand knowledge of how YSP benefits me. A few years ago I got into a bit of financial trouble and missed a mortgage payment. In the aftermath, I had to refinance to pay off bills and past due taxes and was forced to take a rate higher than I liked.

I have since gotten my finances in order and have been perfect with all my payments for well over a year. I am about to get married and I am looking to sell my home within a year. Knowing all of this my mortgage broker was still able to find me a loan that benefitted me even with my short time frame. Because my credit is much improved he was able to lower my payment by over one hundred dollars a month AND pay for my closing costs. By doing this I not only enjoy monthly savings at a time when I have much more important places for the money, but I paid absolutely no costs to do it. That is important because paying costs makes no financial sense if I do sell within a year. My broker was able to do this because of YSP. He was able to increase the rate enough that not only was I still saving over one hundred dollars a month, but the YSP paid for my costs. Please don't let the Democrats take away this ability. It helped me and it helps millions of others get the mortgages they want and need.

The beauty about this story is that I have hundreds and every other mortgage broker has hundreds and the borrowers are of all shapes and sizes. I use YSP for just about every borrower from the most wealthy to those that aren't so wealthy, young and old, urban and suburban, the use of YSP is critical to my business. It is a tool that helps borrowers pay less fees or no fees, and that helps all borrowers. All politicians need to do is find anyone of millions of borrowers who benefitted, unknowingly usually, from YSP and employ them in a sophisticated media campaign.
The Democrats shamelessly employed little kids to make political hay of SCHIP, and now the Reps have a similar opportunity to make the same kind of hay against an atrocious bill. The reality is that the more that people know about this bill the less they will like. Coming out firmly against this bill will work not only on a rational level but an emotional one as well. How many borrowers are there who are struggling to make ends meet who had their closing costs lowered or eliminated through the use of YSP. Millions, that is how many. They don't know it yet, but they will if someone seeks them out. I have several hundred if a Pol ever wants any references.
The industry is universally against this. Here is a piece of an email I just received (email sorry no link)

Mortgage brokers may be facing extinction. The U.S. House of Representatives Financial Services Committee is considering a bill that will fundamentally change the way we are paid. While we agree that consumers should not be steered into a particular loan, the bill leaves unclear whether consumers can finance their origination fees and other costs inside the interest rate. Therefore, it is unclear whether you can be paid YSP. Additionally, we fear that all subprime lending will cease to exist due to the increased scope of the high-cost mortgages section (Title III) of this bill.

We are calling upon our members to respond as never before. To save our industry, we are asking you to IMMEDIATELY contact your Congressman.

TIME IS CRITICAL. The bill became public last week. We have been working with Congressional offices in good faith, but our concerns have not been fully addressed in the newly, revised version released just hours earlier today. The U.S. House of Representatives Financial Services Committee will be debating and voting on this bill on the morning of Tuesday, November 6, 2007.


We are ready and we are serious. All we are looking for is political allies, and for those allies we have millions of stories of regular folks who were helped by YSP. Folks that would pull at heart strings just as well as Graeme Frost and they will all expose these three Congressmen (Watts, Frank, and Miller) as well as their entire party for the totalitarian, demagoguing opportunists that they are.


Anonymous said...

hey its tara, here is the website i was talking about where i made the extra summer cash.......... the website is here

RILIAN said...

Interesting cast of cosponsors�all generally from very urban congressional districts.

Rep Bean, Melissa L. [D-IL-8] - 10/22/2007 *

Rep Capuano, Michael E. [D-MA-8] - 10/22/2007 *

Rep Carson, Julia [D-IN-7] - 10/22/2007 *

Rep Clay, Wm. Lacy [D-MO-1] - 10/22/2007 *

Rep Cleaver, Emanuel [D-MO-5] - 10/22/2007 *

Rep Cohen, Steve [D-TN-9] - 10/31/2007

Rep Ellison, Keith [D-MN-5] - 10/22/2007 *
Rep Frank, Barney [D-MA-4] - 10/22/2007 *

Rep Giffords, Gabrielle [D-AZ-8] - 11/6/2007

Rep Green, Al [D-TX-9] - 10/22/2007 *

Rep Gutierrez, Luis V. [D-IL-4] - 10/22/2007 *

Rep Hodes, Paul W. [D-NH-2] - 10/22/2007 *

Rep Jones, Stephanie Tubbs [D-OH-11] - 10/29/2007

Rep Kaptur, Marcy [D-OH-9] - 10/25/2007

Rep LaTourette, Steven C. [R-OH-14] - 11/6/2007

Rep Maloney, Carolyn B. [D-NY-14] - 10/22/2007 *

Rep Meeks, Gregory W. [D-NY-6] - 10/22/2007 *

Rep Moore, Gwen [D-WI-4] - 10/22/2007 *

Rep Murphy, Christopher S. [D-CT-5] - 10/22/2007 *

Rep Sutton, Betty [D-OH-13] - 10/25/2007

Rep Waters, Maxine [D-CA-35] - 10/22/2007 *

Rep Watt, Melvin L. [D-NC-12] - 10/22/2007 *

Rep Wynn, Albert Russell [D-MD-4] - 10/29/2007


CJM said...

I have carefully reviewed a summary of the proposed HR3915 Bill and I do not see any language prohibiting the payment of YSPs with the exception of non-prime loans. This is addressed in the section marked "Anti-Steering" and addresses the payment of YSP that benefits the originator and not the consumer. This happened recently to a past client of mine. He was refinanced out of a thirty year fixed rate mortgage at 5.375 and put into a Monthly Neg Am Arm, rate currently 9.79, margin 4.85%. Broker charged him 1% loan fee and took $9500. in YSP... AND there is a three year prepayment penalty. A CRIMINAL ACT!! It is the actions of these unscrupulous loan originators that created the momentum for this reform bill. Unfortunately, it will also affect those of us who had our customer's best interests at heart.

mike volpe said...

That story is either made up or with all due respect to your "friend" they are just dumb.

You are telling me someone agreed to move out of a fixed rate at 5.375% and into an ARM, even if it had a tiny payment, that is now 9.8%. If they did that, then I have no pity for them. If they weren't happy enough with a 5.375% fixed rate and thought that an adjustable with a three year pre payment penalty was better, then I am sorry they deserve what they are getting.

Wait, you are saying this borrower also agreed to pay $9500 for this loan.

I suspect you are making this up. Someone who is able to get a rate of 5.375% is simply not this dumb.