Real Estate Insights

First I’d like to start out by reminding everyone that mortgage brokers are still the most heavily regulated home loan originators in the mortgage market. Every fee and charge that a consumer may incur in connection to their loan transaction must be disclosed up front to the borrower – there are no hidden fees.  Mortgage brokers do not currently operate on a level playing field with their competitors, both mortgage bankers and retail lenders, not being governed by the same strict state regulations, are allowed not to disclose these fees and yield spread premiums.

The proposed bill calls for the elimination of yield spread premiums, an integral part of a mortgage broker’s business. Yield spread premiums are used by mortgage brokers and wholesale lending institutions to help borrowers structure the cost of their loan.  Without the ability to receive lender paid compensation, yield spread premium, both the borrower and the broker will be crippled as borrowers will be forced to pay all origination fees upfront consequently forcing most large banks to discontinue their wholesale operations and ending the role of the mortgage broker in the mortgage industry, which currently accounts for over 60% of all originated loans. Without mortgage brokers, consumers will only be able to get loans from large banking institutions whom are not currently required to disclose their fees as thoroughly as mortgage brokers are.

The part of the bill that I do however agree with is the creation of a minimum licensing standard for ALL mortgage originators, whether they are employed by mortgage brokers or banking institutions.  This will help to insure that all loan originators have obtained a minimum standard of education and training.

The proposed bill also calls for the re-writing of current mortgage underwriting standards which will drastically limit the consumer’s ability to receive a home loan.  Today, the availability and diversity of mortgage programs, from 30 year fixed rate mortgage to adjustable rate mortgages, is dictated by consumer demand and the liquidity of lending institutions. These programs, traditional or exotic, exist because there is a need for them, a demand for them, and a source to fund these loans.  Attempting to force the standardization of underwriting guidelines will cause the current mortgage market to collapse, reverting back to the so-called “Stone Ages” of the home financing industry when there were only fixed rate mortgages offered to only those borrowers who could fully disclose their income. The disappearance of the current abundance of different loan options today would be detrimental to real estate prices across the country as many Americans will find it too difficult to qualify for a refinance or even for the purchase a home.

Again I do agree with the idea to help protect consumers from overburdening themselves with unaffordable home mortgage payments, but I believe that the loan originator can take the responsibility to explain the particulars of the proposed home financing and all the risks associated with such a mortgage program.

And finally, if the bill passes we may see the sub-prime market disappear as well as there would no longer be any benefit for banks or lending institutions to make these high risk loans to high risk borrowers because the benefits will be drastically limited by the government.  Without the “sub-prime” loans, many homeowners facing financial troubles will be unable to qualify for a home mortgage, thus forcing them to sell. Imagine what would happen to your local real estate market if everyone facing financial troubles were forced to sell their homes. You’d probably witness your market crashing due to the increase in supply of homes for sale.  In the current condition of the real estate and mortgage market, and the economy in general, any legislation that could possibly limit the ability for homeowners to qualify for mortgages can be considered counterintuitive.

In closing, I believe that the proposed Bill is burdensome to the independent mortgage broker, anti-competitive, and in the name of consumer protection, it will actually harm consumers.  In an already tough lending and real estate environment this bill will put additional unneeded pressures on real estate prices and may cause unforeseen harm to homeowners, mortgage professionals and real estate professionals everywhere.  It will also limit the choices consumers have in finding a residential mortgage loan to strictly large financial institutions.  Lastly, this Act would in essence shut down a large part of the economy should it be approved because thousands of mortgage brokers and mortgage bankers would be put out of business.

So, what can you do to preserve your home financing options and the local real estate market? To take part and help protect your rights to receive home financing from the source of your choice, call or write your local congressman/congresswoman today: http://capwiz.com/namb/dbq/officials/ or http://www.house.gov/writerep/ and urge them to oppose HR 3915.