At the beginning of every law, there’s a preamble and then a set of definitions. Many of you know this: A mortgage broker is not a lender.
A lender is defined by federal law, RESPA, as an entity that makes loans. This means the entity has the money to fund the loans.
Brokers, by definition do not loan their own money. Instead, they’re middlemen who go out and find the mortgage money. The entity funding the loan is the “lender.” This definition comes to us via RESPA. Nothing has changed here, and I predict state law will mirror federal law.
In terms of state law, and in particular, SB 6471, it should now be made crystal clear to the consumer that a MORTGAGE BROKER IS NOT A LENDER.
Okay, fine. We got it. However, there’s one small problem. As I addressed in my four part series on the differences between a banker, broker, consumer finance company, and a credit union within the realm of licensed mortgage brokers we have a hybrid. A “correspondent lender” is an entity currently licensed as a broker, but they have their own warehouse line of credit with a bank. They can fund their own loans, and they can also broker out to other lenders, if they so choose.
Most correspondent shops are very well run, with onsite underwriting, training, auditing, and compliance departments. Currently, many hold a mortgage broker license. Some of these entities are exempt from holding a mortgage broker license because DFI has granted them an exemption certificate because they have direct Fannie Mae/Freddie Mac approval. Unfortunately, these companies with the exemption certificate, (DFI estimates that we have about 300 brokers with exemption certificates,) have been largely unsupervised at the state level. Senate Bill 6471 was supposed to close this loophole and bring all exempt brokers under the Consumer Loan Act.
Many correspondent lenders also broker loans in addition to closing them with their own warehouse line of credit. This leaves the correspondent lenders with a dilemma. Correspondent lenders have the option now of holding two state licenses, or just one. They can keep their license under the Mortgage Broker Practices Act and they also now must operate with a Consumer Loan license, or they can decide to just hold the consumer loan license.
This change affects only correspondent lenders.
Pure mortgage brokers, entities that ONLY broker ALL their loans, are not affected by SB 6471.
Correspondent lenders are mad as hell and many showed up at today’s meeting to express their shock and awe at having to pay an assessment to the state at .000180271% of their annual volume. Depending on the breakdown of correspondent-funded loans v. brokered loans, estimates provided by the correspondents at today’s meeting range from an additional $20,000 to $60,000 per year in fees that the correspondent lender will have to pay to the state of Washington each year.
Existing consumer loan lenders already pay this assessment. Realize though, that many consumer loan lenders loan money at much higher interest rates and charge much higher fees than traditional mortgage companies. Correspondent lenders argue that these higher fees will be passed on to the consumer. One lender present testified that he plans on adding this fee on to the consumer’s fee schedule on the Good Faith Estimate, calling it a “State Tax.” Guys: I’m pretty sure that you cannot honestly present a fee imposed on you, as a “tax.”
Correspondent lenders are also mad as hell for another reason: They must now swim in the same pool with Consumer Loan Companies…..those who we do not speak of. Those bastards that mortgage brokers look down upon. If there’s a hierarchy, it looks like this:
Banks look down on
Mortgage Banks
Who are seen as “less than” because most don’t carry bank deposits. Mortgage Banks look down on:
Correspondent lenders
Who are seen as baby mortgage banks, not fully grown up and ready to play hardball.
Correspondents are always looking down on:
Mortgage Brokers,
Who sneer in disgust as throw up a little in their mouths when they think of:
Consumer loan lenders
Who are seen as nothing more than pawn shops, payday lenders, and one step above the mafia.
Consumer loan lenders have been originating mortgage loans for quite some time. Ameriquest, Household Finance, Paramount Equity, American Equity, are all names of lenders licensed under the Consumer Loan Act who originate mortgage loans.
Now correspondent lenders and consumer loan lenders are swimming in the same pool. Correspondents must take care not to drink the water the CL lenders have peed in and avoid their floating turds.
And now they BOTH have a new punching bag: Brokers have now been classified as the pond scum, right? Wrong.
Because there’s a problem with this new hierchy.
Instead…….BROKERS actually take a step UP above correspondents, because brokers have stricter licensing requirements under the Mortgage Broker Practices Act.
So the hierarchy now looks like this
Banks
Mortgage Banks (what’s left of them)
BROKERS
Correspondents and consumer loan lenders
This is all about ego and money.
Correspondents: It’s now time to get busy figuring out how to separate yourself from your competition. In today’s meeting, over and over again, correspondents told the mortgage broker commission that they bring a great deal of service enhancements OVER pure brokers to the consumer. If that is so, then correspondents should not have a problem in the free market. If this is not the case, if correspondents do not bring added value, then the state legislature has called your bluff. Personally, I believe correspondents DO bring value to consumers.
I can think of at least five different ways to market this change to consumers in a positive way to gain market share. This is nothing but business at it’s finest. Government intervenes, and businesses must find a way to survive and grow. Correspondents will survive this change.
Most memorable moment:
After testimony from a correspondent who reamed consumer loan companies and called them “loan sharks,” Consumer Services Director Deb Bortner stood up, waved her hands in the air and reminded the audience that there are many, many fine consumer loan lenders licensed in WA state and one of them happens to be sitting right there in the room….on the Mortgage Broker Commission. Don Burton from Evergreen Home Loans smiled. John Porter from Mortgage Masters asked, “So Don, tell us the down sides of being regulated under the Consumer Loan Act.” Don said, ‘Well, I can’t think of any.”
DFI’s goal is to have definitions and a preliminary set of rules out for us to review by May 16th.
I think all the lending institutions should be held to same standard. Extra costs will simply be passed on to consumers, after all that is who we are trying to protect, by passing all these laws.
Well first off I LOVE the analogy used in this article. And I’m not sure on what to say or if I am not hitting the point. But the unfortunate thing here is we have a major housing crisis and they’re nic picking like high school scrap. Why don’t every one come together!!Get on the same page same fee’s same amounts you can make Period. all be uniform starting from the bottom up.
I do believe that ultimately the consumers pay for it in the end when an increase or adding of taxes are concerned. I hope that the consumer loan lenders are not having to pay an assessment to the state at .000180271% of their annual volume for the same loans that the correspondent lenders are. That would be double taxation. I wish I knew how mortgage lender and brokers are taxed in order to make a clear assessment on this article.
The state should not have exemptions in the first place. SB6471 takes away a loophole that just put some extra cash in the correspondent lenders pocket. They are mad about having to pay a tax. Can they pass along the tax and stay competitive? Probably. The state benefits because they just found additionally revenue. This issue in my mind is not about anything but money.
This was a fun read. Thank you for the humor! I agree with everyone else, the tax is another way the state can fund the general funds. Are these fees going to educate and help consumers who have been victims of predatory lending or to the legislature to disburse as they see best??
Extra costs will only be passed on to the consumer. I find it funny that the legislature seems to ask us to do more and pay more over and over again.
I love the breakdown of the hierarchy and the truth to those statements. Always appreciate your sense of humor.
Working under the CLA actually is easy, and MBPA is very difficult to conduct business under. Everyone should have their own choice for what works best for their own business, not what makes the most money for the state.
Given the current state of our country I am happy to be able to help as a mortgage broker. It has been very tough for me to write all of these loans with programs restricted and stripped from me the mortgage broker. I believe that licensing is necessary for accountability within the industry and those who fund correspondently should also fall under this. If people would just work with Integrity there would be not need.
Got to go way up this page and agree with Curtis. Appears to be a fine pile of manure dished out by Olympia. Government trying to fill its purse while trying to protect the consumer. It just doesn’t usually happen, but this state has no problem reaching in the small/medium business pocket for its allowance. This goes right back to my last response: even playing field! I give on this one. I’m not a correspondent but if I were the borrower would be paying this bill, not me, and I would list it as a tax all the way to the jail house.
I really like Roger’s breakdown, but agree those few cents will be passed on to the consumer. I wonder at what time did it become okay for the business to have non-standard regulations, and why? Maybe the State needs the money to level the playing field and educate the consumers???
Extra taxes will be passed down to the consumer when it’s all said and done. The great thing to come out of this, is the licensing loophole will be closed.
I had no idea who had to be licensed and who didn’t. Who is a lender etc etc. Who paid taxes and who didn’t and would these taxes simply be passed on the consumer. Best of all I’m glad I’m not at the bottom of the above pecking order (I hope I read this right.)