[...]Dodd-Frank Wall St Reform Act Will Limit Loan Originator Compensation : National Association of Mortgage Fiduciaries[...]…

We are about 15 days or so into the new legislation and from watching multiple industry leaders and small independant banks change their comp sturcture I have noticed that mortgages have become more expensive for the client, both in interest rate and in total cost. Since there is now no ability for a LO to give incentives by providing a lender/broker credit to the client based on the same comparitive rate every loan that closes at a target rate the extra premium now filters to the bank and subsequently to the LO. For example I closed 73 retail residential loans last year for a total of just over 19MM, as i researched and adjusted the new comp plans for my company and our competitors, 90% of those 73 loans would of been atleast 85 basis points more expensive for the client on average, IE the credit I gave the client to offset their cost in most cases did not exist, in some cases the rate was underwater. Do the math we would of generated just under $150,000 additional revenue on 73 loans (based on the average target rate increase and new additive overage in the market) now take that on a larger scale and look at a company that closes thousands of loans annually. Do you think this is justified? Do you think this was something that was not obvious to everyone involved? Do you truly think congress or the Fed cares how much money LO’s make or consumers save or do you think they are more concerned about liquidizing Big Banks and having greater tollerences built in for default risk?

Most consumers don’t want to pay people for the time spent sourcing their business but I do understand that the hourly rate does include all that.

I am all in favor of having consumers PAY LOs for the time spent doing things that are now done for free, e.g., helping people improve their credit score, counseling first time homebuyers, and so forth.

Even with time spent in meetings, training, and learning policy guidelines, this is an industry where someone with no high school diploma did earn huge wages during the bubble run-up.

That’s all being reversed now and only those who truly love the industry are sticking around.

And…just curious…are you paid by the word for your articles?

http://www.namb.org/images/stay-of-rule.pdf

If any of you have not heard or seen what has happened today, Dodd Frank has been repealed and put off until April 5th…Chris Dodd actually apologized to the Federal Reserve about how some of the output of this law is un constitutional and he actually said “my bad”….yet another reason I do not live in CT ….. Can’t wait to see where this takes us, 5 days hit the streets hard people, especially while everyone is tryignt o figure out what just happened!!!

I will bet you five bucks that there are plenty of LOs who will gladly originate those loans in your market area.

Knowledge is power

So I wonder how many ppl will continue to complain about rates going up to cover for that? Hmmm.

Yes banks created the loan programs. LO are the ones who sold the loan programs to the consumers. Nobody held a gun to any LO’s head and FORCED them to sell toxic pay-option ARMS. There was a choice.

Some LOs chose NOT to sell the toxic loan programs. Banks will come back again someday and sell ARMS once again. Except this time with the LO compensation prohibitions under the FRB rule along with Dodd- Frank, far fewer people will be sold loan programs that are not in the consumer’s best interest.

There were too few regulators out there trying to regulate too many brokers and non-depository lenders and all the LOs. If you want more regulators that’s fine but then the industry will pay MUCH higher fees to fund those regulators.

Nothing wrong with earning YSP…provided the YSP is fully disclosed and explained to the consumer. The Fed found that most consumers don’t understand YSP, btw.

I’ve answered a LOT of your questions regarding consumers and their ability to shop on a new blog post here:

http://mortgagefiduciaries.com/2011/03/federal-reserve-board-rules-on-lo-compensation-prohibitions-aim-to-end-predatory-lending/

Regardless of your negative thoughts, loan officers are only trying to make a living and be successful to provide for their family. One of my favorite parts of your ranting is when you said that someone with an 8th grade education could be a loan officer. I will assume that you mean formal school room; control influenced “learn the way we say is right” education.

Clearly, we are not doing surgery as loan officers; anyone that has the desire to learn to be a loan officer can do so. To be a good loan officer, one must have the personality and want to do it, formal education, is not nearly as important as these characteristics.

My formal education has helped me understand markets, finance, and business; it does not necessarily make me a better loan officer or mean that someone with more experience couldn’t do a better job. Attacking people because they don’t have formal education is wrong.

You won’t change your point of view; no matter what valid, logical, and correct points many people make. So I can only conclude that you identify with this on a very deep level. You want all this change in regulation to change the rules, instead of changing the fundamentals of how the “game” is played. You want control and a level playing field and think you are better and the world would better in that situation. Just so you know that is not capitalism, BY DEFINITION NO MATTER HOW YOU SPIN IT, NO MATTER HOW MANY DEGREES YOU HAVE, NO MATTER WHAT, IT IS NOT CAPITALISM!!! So if it’s not capitalism what can it be, correct answer is SOCIALISM so you are a socialist, which is fine but you need to admit it… acceptance is key and if you don’t know who you are you don’t need to be telling others what to think or MORE IMPORTANTLY HOW TO VALUE THEIR WORTH OR HOW ONE SHOULD VALUE THE WORTH OF OTHERS, (That’s communism in case you missed that) What you don’t realize is that what you want more than control is freedom, however, that scares you so you pull at straws to get control.

Do you think lenders advertise to clients to give them what they can afford? Do you not see that all these banks have credit cards too charging 20% interest.? The fact is this bill benefits large banks, the same ones that crashed the largest economy in the world, the same banks that could care less if they hurt anyone. Whose main focus is to make a profit and maintain control. You are acting like one of their puppets with no original thought. You simply agree with whatever they tell you and then say loan officers should be paid like accountants or lawyers. Then you say we should have a regulatory agency, what a joke do you really think that if it was in the banks best interest to have one, we wouldn’t already have one. If you’re going to write something at least find an original thought and not an agenda. You are doing more harm than help right now so if you really want to help the consumers write the truth. Also, all regulations do is regulate the past, the government never creates a policy that helps going forward. Maybe they should spend more time enforcing the laws they have in place instead of making more laws not to enforce. Then through law suits the courts are left to sort through their mess and that takes years, then once it’s out of the public’s view it’s forgotten. Not to mention no Fed charges are ever filed. Big corporations make this economy run, so they control what laws are enforced and how laws are written. This is our Country and nothing will change until people like you make the decision to think for their self. So I ask you please don’t take a stand until you can with an open mind.

I will leave you with few questions a little more relevant to your article.

Who Profits the MOST from Loans?

Who manufactured the loan products that led us to the mortgage crisis?

When foreclosing are lenders following the law right now is there anything in this bill to address that going forward?

Were there laws in place TILA, RESPA, SEC laws, Common Law, Federal and State Laws that broken to cause the mortgage crisis?

Has the federal government or congress put any more resources in the enforcement agencies of these laws?

You say lending is not like buying retail so I assume you mean that the service you receive is not the same. However the product is. If you get a FHA mortgage from one company it is going to be the same FHA mortgage as from a different company.

Shouldn’t each lender decide what they charge for their services? (rate, fees)

Or should we just charge the same for all lawyers, doctors, real estate agents, accountants?

Why is making money on a YSP bad for the consumer? If they agree to the rate, terms, APR, GFE and understand everything they are receiving.

How does the loan officer making money off the rate matter to the consumer when the bank is still making money off the rate?

(Please give an answer other than it gives incentive to the LO to give higher rates and push bad products. You are not speaking to the public here we are professions and know the business. There are no bad products and they can shop your rate or take 2 seconds to Google it. These people are about to be responsible for a mortgage.

You say we need liquidly in the market. For the market to open up we need good loan products how does limiting the competition among lenders drive the release of new loan products?

You say Fannie and Freddie won’t be around in 2 years and we need private funds to take over the backing of MBS. We didn’t have a problem until the selling of MBS full of mortgage defaults were sold as good paper. If we are correcting the problems why is this a concern?

Thank You

The government allowed Wall Street to give us products to sell and we simply sold them. BofA sold them, Wells sold them, and they definitly made more money than me. As to the compensation. If I can make a loan for less than and at a lower rate that BofA or Wells why is “ANYONE’ harassing me about what I make. You just cannot say or insinuate that I’m doing a disservice to the borrower and Barney shouldn’t be able to either. I don’t know how you get paid as an Author but I’ll bet the government doesn’t tell you it has to be by the word or by the page and not by the content.

The finacial system is souly based on the stability of the banking sector and that is not going to change. The U.S. economy can not withstand another banking crisis, yet it also needs Mortgage backed securtizes to create influx in the market and help marginalize our governements debt. With that said the issue arising is that these so called “Big Banks” that lent far more than they had a risk tollerance for, never had enough profitability built into each loan. Dodd’s mentaltiy is each loan is going to have the same amount of risk, therefore each loan should have the same margin to cover any losses, and that margin is far to low. The fact that politicians want to strengthen the amount of cash or profit a bank has is not so Bank’s Corporate sector can get rich, there has already been numerous regualtuions outlining bonus structure and profit sharing since 2009 to reduce overall compensation to Banking executives, we must understand Banking Executives are regulated by other authorities like the FDIC and SEC becasue they have other outlets of income.
It seems that this factor is giving way for a lot that needs to happen in the future, we need to realize that in 2 years Fannie and Freddie will no longer be, and there will need to be a private institution that steps in to help Guarenttee these lonas, unless they see a large spread in the margin built in for default they will not have the desire to step in, and that could be catastrophic. This will impact the consumer 10 fold, mortgages going forward will be more expensive, but then agian so will gasoline, the price of milk, and shoe laces just to name a few, but that is natural growth. Some would even argue mortgages are not as expensive as they should be for the consumer,these banks need incentives to lend and low rates and big margins are all they anwser to. Others would start to argue that guidliens are tighter now so that defaults should go down and that alone should spark interest in the private sector from investors, however, what we need to realize is that we need to increase the volume of units to start to slowly increase the value in homes, so with that said it looks like we are starting to pave a way to remove credit based undewriting where an 805 fico can get whatever they want, and get to a place of manual u/w as there will be more margin built in Banks and Investors will have the ability to lend to people with non traditional credit, as long as the they can justify there payment ability. Therefore increasing the ability for these people to repurchase homes in the future. Especially the people that could afford a 200K home but went out and bought a 400K home and lost it. The idea of homeownership is still the driving factor in our regulations, and the fact that they are spinning that to trying to protect the costs for consumers is disgusting, becasue anyone with a clear mind will realize this will increase the cost of mortgages to the consumer, not decrease it.

Look I of course understand that they could of done this 100 otherways they could of minimized YSP to 101.00 and be done with it, and mandated banks to carry a greater margin in there portfolio, yes rates would go up .5% and yes consumers would get angry, but this is the way they feel (as they always do) they can lead the public by the hands and create an appetite for private investors to lend again bottom line.

The day of a Mortgage Broker may go away, however that does not mean that the way you do business has to. I will be honest I have applied for a 2 MM line of credit and a Lenders Liscense in the past and I know a ton of private companies looking for correspondants, it is not as difficult as it is made out to be to table fund loans. You are still a glorified broker, you still get competiive rates, you set your own margin, and you don’t have to worry about YSP becasue you don’t have any to show or make. Maybe that is something else people could think about, and trust me I can not stress enough how much I miss my 1099 income playing golf 3-4 days a week, still closing 40 loans a year and making 6 figure income, maybe that is a way to get it back I don’t know.

I never designed a sub-prime or Option Arm. When those types of loans needed to be made, I made them, but not many. I never approved any loans, of course. I packaged the loans and gave them to a lender’s underwriter to approve.

But the government–along with the Big Banks–have decided that I’m the reason for the mortgage meltdown. My YSP, which simply meant that the Borrower’s fees were paid partly or wholly with a higher interest rate, the same thing the Big Banks do with their SRP’s, were the culprit. This concept was pushed by Chris Dodd and other corporate shills. After all, they got their perks and campaign funding from BofA, Wells Fargo, Chase and Citi.

My bad. I never made enough to buy-off any politicians.

So they come up with a non-specific GFE which doesn’t even break-down my fees from the lender’s fees, and doesn’t even show the borrower how much cash they’re getting from a refi, or how much cash they need to bring in for a purchase.

But the ONE THING GOOD ABOUT THE NEW GFE, at least with brokers, is that it clearly shows that the YSP– that thing that Dodd and his cronies blamed for about every sin possible– as now A CREDIT TO THE BORROWER.

Now, I thought, we’re finally done with this issue. Sure it’s convoluted trying to explain to a borrower how their YSP actually makes the loan a, say, no-point loan, especially when the comparison is to a bank’s GFE which doesn’t have to show any SRP, but I can handle it.

But NOOO, that wasn’t enough punishment for us. The GFE that HUD itslf designed, STILL doesn’t do enough “for the consumer”, they proclaimed. Now they decided to control and limit even more what a LO can earn. Because, they said, it will help the consumer.

But it DOESN’T help the consumer. It just pushes the money made on a loan up to the executives at the banks, a true re-distribution of wealth to the wealthy. And if I WANT TO CHARGE LESS ON A LOAN, I CAN’T. How does that help a consumer?

So I’m just about out of business. My expertise and great rates will no longer be out there for the consumer to choose or not choose. The big banks, who can’t match my service or my rates will win.

Jillayne, you write commentaries on other sites, and they’re usually anti-LO and, by default, pro-Big Bank profits and poor service.

In your next opinion piece could you defend us a little?

The LOC directive/rule won’t work. It benefits no one. I can agree with a 3% cap on a loan as long as this only involves Origination Fee and/or YSP/SRP/OVERAGE/PROFIT-MARGIN. Lender Fees belong to the lender and are rarely, if ever, paid to the LO.

How to fix? Require that ALL mortgage industry providers disclose net rate-price. Brokers have to disclose YIELD SPREAD PREMIUM. So now we should make Banks disclose OVERAGE or PROFIT-MARGIN. Bankers should disclose SERVER-RELEASE PREMIUMS.

If there is balance in disclosure on the GFE, then the playing field is level. There is no arguement that can be made that this is unfair to the consumer. There will always be differences from one GFE offer to another; so the consumer can then decide on their LO by:

1. Recommendations of the LO.
2. Experience of the LO.
3. Time-line gaurantees on closing the loan.
4. Perhaps who will service the loan.
5. Maybe on the location of the LO (are they easily accesiable).
6. Is there any credit towards closing costs.
7. The amount of lender fees.
8. The rate available.
9. Locking periods; float-down options.
10. Do they charge Escrow Waiver Fees or other non-FNMA/non-FHLMC fee adjustments.

This isn’t going away in my opinion. And I don’t want to do anything else in my career. But I also don’t want some ridiculous law impacting my livihood which ultimately impacts my business partners and our mutual customers.

Pay me hourly? Are you kidding?! I happen to think my service, experience, and knowledge our worth much more than what the average consumer would ever be willing to pay. And I don’t want the customer ever thinking “should I call him or not as I don’t want the hourly clock ticking.”

So will my idea of full disclosure work? Alas, I say not as the big banks will just dump more lobbying money to squeeze all the other players out. As the guys at TBWS said recently, ever wonder why none of the big banks have commented on LOC rules?

I’m a survivor but will gaurantee you that my Government will not tell me how much I can make. I’ll take care of that with my vote… as everyone else should too. And good luck to the NAIHP and their Federal Lawsuit. Way to go!!

They point out what I’ve repeated often in this forum– that the money made in a mortgage transaction hasn’t been lowered with the new rules, it’s just being redistributed to the execs at the big banks.

This takes earnings away from LO’s, and the consumer– who was supposedly being helped with the new rules– is just being ripped-off more.

http://tbwsdailyshow.com/2011/03/06/bank-of-america-blocks-tbws-daily-show-from-loan-officers/

As an industry standard as guidlines change we must take a look at the past and understand what type of future are industry is setting up to become. I would advise many broker’s out there to contact a close lender they use, to see if they can expand on the current business arraingement. We are a Direct Lender, and we have been helping our broker’s my converting them to retail branches. Just an idea.

Thank you for pointing out that correction at least you added something of concrete value. I was unaware as to the change I was always under the notion it was dictated as cash value, not a thing of value, thanks again for pointing that out.

David Most things you see through the net are in fact lead generating services as you stated. They will take you information and sell it over and over again to as many lending insitutions as possible. So it does not give an advantage to anyone really, a mortgage company no matter the size can contact a lead generation company and by 1,000′s of leads in specific states, even specific zip codes, based on geographic market research.