97 thoughts on “Merkley-Klobuchar Amendment Creates Level Playing Field”

1. Why don’t you actually do some research before you write a column for the bird cage liner paper you work for. As a mortgage banker I always offer my customers several different options. In most cases it can take over 7 years to recoup closing cost by the miniscule monthly savings they provide. Since the average person moves or refinances every 5 years who is getting fleeced? Once again government regulation is going to do only one thing. Decrease options for the end user and will decrease competion which will cost them more money. Wake up. It is not the governments job to protect the consumer and when they try all it does is cost them money.

2. Hi Nelson,

   Thanks for stopping by NAMF. If your average client moves or refinances every 5 years and it takes 7 years to recoup closing costs on a refinance, then how do you help clients make decisions on whether or not to refinance? Do you talk a lot of people OUT of refinancing?

   “Wake up. It is not the governments job to protect the consumer”

   When an industry has shown little regard to care for it’s end consumers, American history has shown that indeed government does step in to protect the consumer.

   http://www.america.gov/st/usg-english/2007/October/20071009171007liameruoy0.6069757.html

   I’d like a future of SUSTAINABLE homeownership. That also means a sustainable mortgage lending industry for workers just like you.

3. Whatever happened to a customer getting a gfe and shopping for a best rate and price for them? I was always thought that competition was the best way to keep the prices down. I just closed a loan and I charged the customer 4 points(the most that I could charge in this state) to do the loan. I made a total of $6,100 in yield spread to do this loan. Well I turned around and credited back $3,900 back to the borrower to pay for the closing cost. So that left me with a net of $2,200.00. Well after I pay me processor her fee of $450 per loan, plus pay my broker his percentage and Uncle Sam his cut I will be left with around $800.00. Now a lot of Brokers have overhead. With unemployment being so high do you think that this might have a negative effect? The point that I am making is that I will bet anyone $100.00 if they can come up with a bank that will give a lender credit to the borrower to make the loan work. Mortgage Brokers has to pass the National and State Test. We also have to have our credit reviewed and continuing education. Those things I do not mind but please let me have the opportunity to compete with the banks. Or please tell me how these changes is going to benefit the customer.

4. Hi William,

   Thanks for stopping by NAMF. It sounds like you’ll need to write more loans to make it all work for you. Other LOs will find a way to cut expenses.

   The change will benefit the consumer because (during the real estate bubble run-up) when consumers received a GFE and shopped for a loan, predatory lenders would bait and switch and the consumer ended up paying more in fees than the initial GFE.

5. Jill,

   You argument is ridiculous. Bottom line is that this bill takes awy AMERICAN CAPITALISM in one industry and one industry only. Where is the regulation for mark up in all other industries.

   Recently my father had a knee replacement. My brother works for a total replacement company and sold the new knee and bone cement to the doctor/hospital for my father.

   The charges from my brothers company to the doctor/hospital for the bone cement were 79.92. When the bill arrived to my father the charges for that same bone cement were just over 800.00.

   You want to talk about disclosure. Go lay down in a hospiatl bed for a few days. They dont disclose one damn thing as to profit or charges upfront. Do these doctors and hospitals charge for their services by the hour. Absolutely not.

   Have you ever bought a car??? where the hell is the regulation. I have several clients who finance cars. They always talk about “Holding Points”. This is the Lingo for YSP on auto loans.

   Have you ever originated before??? No cost loans are for real.The borrower does not pay the upfront costs!!!!! When a Borrower is currently paying a mortgage note at 6% and 4.5% is the par rate on a wholesale rate sheet there are fees involved, these are costs involved straight from the borrowers pocket. If the interest rate is raised to 5% to pay YSP (used to pay borrowers cost), does this not better the borrowers situation from the current 6%??? I realize that there are higher finance charges paid over the life of the loan than would be paid at the par rate of 4.5%. But what if the borrower doesnt have funds to pay the closing costs for 4.5%. Under this new bill this leaves no option for the consumer

   You ought to take a look in the mirror. Your liberal save the planet views are a joke. If we are going to regulate the compensation to one American it ought to be regulated for all.

6. I don’t see any “save the planet” jokes? So I’m assuming that’s sarcasm. Yes, I’ve originated. Regarding your statement “no cost loans are for real…”

   Well, hopefully you’ve had a chance to update yourself on current law.

   The statement “no cost loans” is considered deceptive since indeed borrowers ARE paying costs in the form of a higher interest rate.

   This is a perfect example of why government regulators are tightening their vice grip on loan origination practices.

   If the borrower doesn’t have the funds to pay the closing costs they put their closing costs into the loan. That’s what we did back in the 1980s. Borrowers will still have choices.

   Don’t fear the future. Embrace it. Your competitors are already preparing for 2011.

7. I really don’t understand. I agree that borrowers should be underwritten to a point to ensure their ability to pay back their loan. I also agree that the cost to a borrower should be disclosed so they can compare one offer to another. I don’t agree that they have to know exactly what I get paid and by who. If I am providing a better rate than they received from their bank or from the other companies they shopped, Or what if they feel they want to pay a little more for the professional service I provided. Should we charge for the pre approvals we do o a Sunday when they want to make an offer on a home. Or meeting them at their home at 8:00 PM after they are done with dinner. What does it matter what I am earning. They can shop-til they drop. What would make me want to spend the time it takes to help a borrower that is not financially savvy through an FHA loan. They need documentation they don’t understand. They deposit cash into their accounts that they need documentation to source. I guess we only want to lend to perfect borrowers that we can take an application and drop right on the underwriters desk for a gold star. This way lending will only go on in the areas that have these financially savvy document ready borrowers. Watch our cities fall with a lack of lending.

8. Oh please spare me, Greg K. Our cities will fall from a lack of lending? I think not. I suppose what you’d like is the old subprime days back where ppl just stated income and LOs didn’t have to lift a finger to make a six figure income, no experience necessary.

   The world tried that and it didn’t work. Wake up. You’ve entered the hot tub time machine and we are back in the 1980s with the same style of mortgage lending, like we did in the 1980s when people had to document their income and document that the downpayment wasn’t borrowed funds.

   The ONLY LOs who have a problem fully disclosing their fee income is LOs who want to continue to hide it from their clients.

   I meet hundreds of LOs every year and those who have no problem explaining their fee income are completely fine with the way the world is going to work next April when ALL LO income is going to be forced onto line one of the GFE.

   Your competitors will GLADLY originate those FHA deals for clients who need hand-holding for a competitive fee and offer a competitive rate.

9. I am one of the top producing loan officers in my market. In 2008, when I worked for a large bank, I was ranked #12 in production out of a field of over 300 mortgage loan officers nationwide. I am currently making plans to leave the mortgage industry as a direct result of the Merkley ammendment being discussed.

   I don’t rip off anyone. Sure, I make a lot of overages, but my profit per file, when measured in dollars, is lower than most of the loan officers in my bank who focus on large, good credit, conventional loans and often turn down or ignore anything that looks small and/or difficult.

   My average loan amount is only around $120K. I’d guess my average credit score is somewhere around 640. Many of my customers are first-time home buyers and veterans. They utilize some of the more difficult and time consuming loan programs to process (RD, VA, FHLB grant money, and various Al. Housing Finance Authority programs). It’s not uncommon for me to assist a family for a year or longer to get their credit to the point where they can buy a home. In addition, I spend a lot of time taking applications and creating solutions for people trying to buy homes under $100K that never work out.

   Therefore, I do not and will not apologize for charging 1/4% higher interest rate on an extremely hard/small loan than I would charge for an extremely easy/large loan. The fact is that many of the government programs I utilize, such as AHFA Step-up, have overages built right into their programs as an acknowledgement that they are very difficult and time consuming for lenders.

   Based on historical data, I’m looking at a 42% pay cut as a result of this Merkley ammendment. Am I the only one who finds it amazing that a person can wake up one morning, in the USA, and find that their pay was cut 42%,… not by their employer,.. but by the US Congress?!

   I work very hard and went to school for many years to earn an MBA in finance. Sure, I make a lot of money, live in a nice house, and send my kids to private school. But, I have a mortgage too. What happens to my family when I take a 42% pay cut? Perhaps this class warefare society has gone so far that some of you reading this will actually take delight in my family’s demise.

   My choices now are to stay in the mortgage industry and stop doing loans under a certain dollar amount or to get out. As it’s in my nature to help people, I don’t see how I can stay in the mortgage business and just start turning people away who need my help. It’s not the Christian thing to do. Therefore, I’m considering a move to the financial advisor industry and hoping my family can survive the temporary income drop without having to sell our home.

   PS – If anyone believes consumers purchasing homes under $100K utilizing governments loan programs will benefit from this law, they a truly delusional. I have many mortgage loan officer friends at banks who have implemented these changes already. They, and mortgage loan officers across the country, are not even going to return the calls of people trying to buy small houses. Do you really think experienced mortgage loan officers are going to do a $60K government loan for a $300 commission? Before this law, my fellow mortgage loan officers thought I was crazy doing them for $600-$750 comission.

10. Hi Brian,

    Please spare the universe your “it’s not the christian thing to do” attitude.

    I’m sure there are many, many loan originators of any faith and LOs who are atheists that will be more than willing to take the business of your “low loan amount clients” and earn a decent living originating those loans.

    Don’t let the door hit your ass on the way out. Good riddance to you and your overages.

11. Loan Officer A takes an application for a $300,00 conventional loan and charges the customer a 4.25% interest rate (no overage) with 1.0% origination fee. He spends about 4 hours of time and earns $1,500 commission.

    Loan Officer B takes four $60,000 applications. One actually looks feasible, and he does a $60,000 RD loan with FHLB grant money and charges the customer a 4.50% interest rate (1% overage) with a 1% origination fee. He spends 15+ hours getting this loan through the government agencies and earns $600 commission.

    I submitt to everyone reading this post that Loan officer A is the one who actually ripped off his customer.

12. That’s why loan originator A’s compensation will also drop…because his/her competitor will GLADLY do that loan for WAY LESS THAN $1500 per hour.

    NO LOAN ORIGINATOR READING THIS POST IS WORTH $1500 PER HOUR for your time. People you don’t even have to have a high school diploma to become an LO. A 20 hour class and pass a national and state exam. That’s it!

    Loan originator B, having spent 15 hours putting this loan together, is not a loan originator I would hire to do my loan! Consumers are better off selecting someone with way more experience who can put that $60K loan together in way less time.

    The LOs who are smart will gladly find a way to take your clients from you, Brian, and originate that deal in 1/8th the time.

    Bye bye….go become a financial planner. I’m sure you will have to spend a lot less time finding clients…heh…heh.

13. Let me get this straight, you believe-

    1) a mortgage loan officer takes an application, gathers docs, turns the file over to a processor, and their job is done.

    2) anyone can be a successful mortgage loan officer regardless of education or intelligence level.

    3) Any successful mortgage loan officer who, let’s say makes $200,000 a year, couldn’t be anything more than a ripoff artist who takes advantage of ignorant consumers.

    4) The government should regulate the pay of professional basketball players based on the fact that there are other people (myself included) who are willing to play professional basketball for much lower wages.

14. Basketball players have nothing to do with loan origination. Stay on topic.

    Successful LOs who make 200K per year can be found all over the United States. Successful LOs who make 200K per year ought to be smart enough to figure out how to make a living under Wall Street Reform or someone else is going to take that 200K from ya.

    Anyone can be a loan originator (note the absence of the word successful) regardless of education or intelligence level as long as they meet the requirements of the SAFE Mortgage Licensing Act.

    Successful LOs do way more than take a loan app.

15. After reading this, it appears that you label ALL individuals in the mortgage profession as irresponsible and greedy. Many critics of this situation demonstrate a true lack of knowledge and understanding of the industry. The changes in this industry do grossly affect loan originators and consumers alike. In fairness to loan officers, there are many consumers who need a considerable amount of guidance to qualify for a home loan because there are many borrowers who are not qualified when they walk through the lender’s door. Some of these borrowers may work with a loan officer for months, if not over a year, before they qualify to purchase. There are limits on the compensation a loan officer can make and there always have been since I have been in the industry. Every lender I have worked with was even more stringent than the government to avoid any compliance issues. On many files, if I amortized what I earned compared to the time spent, it would be less than minimum wage because I helped someone achieve the American Dream. The revisions in the laws were aimed at individuals no longer in the business. Those of us still standing, by and large, were not the problem. The problem was the BIG BANKS who created the programs that had NO BUSINESS being sold to the general populace and resold on Wall Street. I did not sell those loans because I understood the consequences; and, it would have been grossly irresponsible. For the most part, the Big Banks were bailed out and the loan officers have been the scape goats for their bad behavior. Further, many loan officers, such as myself, have helped many consumers report the bad actors in the trade to the government. However, the government was asleep at the wheel because they did not investigate those complaints. Prime example: Bernie Madoff! Look how many complaints were made against him over ten years, and the SEC did nothing until it was too late. The mortgage industry was no different.

16. Hi Andria,

    Thanks for stopping by NAMF. I agree with you that there were not enough government regulators to adequately regulate mortgage lending. But there never will be enough regulators to regulate each and every transaction, each and every LO.

    Yes, on many files our compensation seems very low compared to how many hours we spend on that particularly difficult file. LOs tell me (before I tell them about the math calculation I’m about to do) that they routinely spend maybe 4 hours on a file.

    After we do the math then they back peddle and add all kinds of additional hours into the mix.

    Yes some files are very challenging, some aren’t. Take away the outliers and run the stats again.

    Big banks will be back again someday with toxic loan programs. Just because a loan program is there doesn’t mean we have to sell it. To blame the banks is to shift responsibility away from ourselves and onto someone else.

    Even if an LO never originated a pay option ARM, that person is still going to have to suffer the consequences of the many who did. That’s why it’s in everybody’s best interest to self-regulate the predatory lenders out of the industry.

    I truly enjoy working with loan originators. They’re fun to work with and teach me new things every day. I could do without predatory lenders.

    If we think they’re all gone from the industry…..we’re wrong. They’re still around. They just look different. Maybe they’re doing loan mods or short sale negotiating. Maybe they’re working over at a bait-and-switch type of company like Lending Tree, but they’re still here.

17. So basically what the mlos were doing were charging customers more for a certain product than what the customers actually could have gotten it for some where else? Or the Mlos were making money buy charging the borrowers by raising the rate (price) of the product?

    where have I read about this before. I know I have heard about this… … OH yeah, any company you buy a product or service from.

    Example:

    Target and Walmart buy their candy bars in bulk for Twenty Five Cents…
    Lets say I go to Target and buy a candy bar for a dollar, however, I could have bought the SAME candy bar for fifty cents at walmart.

    TARGET JUST MADE Seventy Five CENTS ON ME when I could have went to walmart and got it for cheaper??!?!?!? Those jerks..

    Who is to blame? Target for charging me more than walmart or me for not shopping around?

    Why is the Mortgage industry and yield spread premium/ overage/ or what ever you want to call it any different than the above example?

    You write about disclosing all earnings for the MLOS.

    why dont you write an aricle about making rules that all companies disclose how much they make everytime they sell a product or service to a consumer instead of just the mortgage industry. <<<< thats what I call a "even playing field."

    This new law and your ideas in your article teeter on the brink of Socialism. So much for free trade and capitalism.

18. Hi Spencer,

    Selling a candy bar and selling a mortgage loan are two very different things. One has a very nominal cost and minor consequeces. The other has a very high cost and huge consenquences.

19. Spencer and others…..LOs want to be seen as professionals yet want to have the same duties of disclosure and care as that of a retail salesman who owes his customers very little duties of care and disclosure.

    Federal laws are dragging LOs into the same status as that of other professionals and some will not go without kicking and screaming.

    Doctors, lawyers, engineers, paralegals, CPAs….all owe higher duties to their clients including duties of disclosing all compensation.

    Wall St Reform Act is forcing this upon LOs.

    This isn’t socialism.

    Instead, the act of originating a loan is becoming a profession instead of a retail sales position (where no duties of care and disclosure exist other than following state/fed law.)

20. The Candy Bar example was just that and example….

    Originating loans has always been a profession, regardless of what the new federal laws are requiring for disclosure now. Your above comment shows that you have little experience in the mortgage industry regardless, of what you say. Being a mortgage loan officer takes time, patience and dedication to the customers aka A PROFESSION.

    There are lots of other professions with “High Costs/ huge consenquences” that do not disclose pay…. Car Dealers, insurance, investment, etc etc.

    This isn’t socialism yet, but it is the beginning of it.

    Lucky in 2 years, the government is going to get put back on track with the election and people with views and ideas like yours, will be history. Keep your liberal jargon and ideas off the web, its posioning our society.

21. I have been saying this for years, Spencer. LOs are not a profession, Instead they’re classified as an emerging profession. I have writen about this elsewhere:

    http://raincityguide.com/2007/03/24/professional-status-perceptions-and-reality/

    Actually I didn’t vote for Obama. This isn’t socialism. It’s called “your industry is transforming from being a retail sales position into being professionals.”

    I have over 25 years of experience in the industry.

22. Your continual comments about there being no such thing as a No Cost loan are inane. Of course a No Cost loan exists. If you get a loan with NO COSTS and no penalty to prepay @ 5%, the loan had no costs. The fact that you could have opted for a 4.5% rate with closing costs doesn’t change the fact that the 5% loan had NO costs. You prattle on about how the costs are “amortized over the life of the loan”, but what IS the life of the loan? A 30 year loan could very well have a life of only 2 months if the homeowner is relocated to another part of the country. Someone who refinances today and finds themself being relocated and having to sell their house in 3 months would certainly prefer to have had no closing costs than to have paid thousands of dollars to get a lower APR, the benefit of which they won’t be around long enough to see. Thankfully most consumers aren’t as STUPID as you are, so if they aren’t certain how long they’ll own their house, they’re smart enough to consider only loans without any closing costs. For those few, though, who are stupid enough to listen to people like you who say that No Cost loans don’t exist or are only a form of false advertising, they may put off switching to a FREE lower-rate loan, thinking they have to wait for some rule-of-thumb mythical 2% drop in rate before refinancing makes sense.

23. Here’s the REAL effect of Merkley-Kloubuchar (and the Fed’s new rule on originator compensation):

    LO’s can’t make an “overage” by charging a higher (higher than what?) rate. LO’s also can’t take an “underage” (agree to be paid less than their standard commission) by giving the borrower a lower rate. LO’s must be paid their standard commission – and not one cent more OR LESS – no matter whether they charge rate/points/fees that are profitable to their company (or bank) or constitute a huge loss for their employer. Therefore, a LO is incented to quote pricing that is beneath their company’s quoted pricing, secure in the knowledge that their own commission cannot legally be cut by one red cent. In recognition of the danger that this system poses to creditors (banks or mortgage companies) – with LO’s quoting below-market pricing yet being paid full-boat commissions – creditors will jack up their standard quoted rates in order to insure against the danger of rogue originators who deeply discount rates in order to bring in more loans. Aside from the few consumers who stumble across a rogue originator, most consumers will pay markedly HIGHER rates.

    In the old days, some people got charged higher rates than others. Merkley-Klobuchar & the Fed have fixed this. Now everyone will pay higher rates.

    These rules may limit originator income. They’re certain to radically increase creditor income at the expense of the consumer. It’s the law of unintended consequences. Credulous supporters of government do-gooderism will undoubtedly think they’ve improved things, but creditors will end up making more money than ever. It will all be hidden behind the scene, though, so the do-gooders can continue to be proud and sanctimonious, never understanding or acknowledging that consumers everywhere are paying dearly.

    The new Fed rule doesn’t officially go into effect until 4/1/11, but mortgage industry gross profits are already higher than they’ve ever been in history, in no small part because banks are gearing up for the day when they won’t be allowed to charge “underages” to the originator.

    Thanks Merkley-Klobuchar!
    Signed, John Q Smith, CEO Humongous Mortgage, Inc.

24. Seriously? If you think that regulating the amount that a mortgage broker can or cannot make and how he can make that compensation is going to change the outcome of whether a borrower will or will not make a mortgage payment then your living in another planet. Lets be clear that the mortgage broker can only sell a product if it exists to begin with. The banks and wall street spent years competing over loans. Each investor would come out with new products with lower requirements for credit,Ltv , dti etc. The broker had. Nothing to do with making a product that’s on the banks and wall street.
    what’s next are we going to tell a car dealer he can’t make money, an insurance broker he can’t make money. If you think your going to see a level playing field based on lo com
    pensation your crazy. Lets be clear that at this point a broker is paid for his knowledge. We just spent years being put thru the ringer getting liscensed. An employee of a bank rodent need to do anything close to what e have to. In the end the consumer will suffer as ussual and her the burden of over regulation of the industry.
    Congress should take a look at there own track record. How about we base There salaries on there decisions that work and don’t work. One day There out there pumping up the need for equal home lending and the next day were over lending to people who can’t afford it. This whole.issue is sickening and irrelivant to the final outcome of whether someone Will or will not pay There mortgage payment. Half the people.probably couldn’t pay there payment beacause there medical insurance just went up 75% in 3 years and There credit card interest rate is 30%. How is it we are wasting valuable time worrying about how much money a mortgage broker makes and yet a Creighton card company is allowed to charge rediculous rates and insurance companies are just doing whatever they want.

25. Isaka, advertising a “no cost loan” when costs are covered by selling the borrower a higher rate loan is considered a deceptive advertising practice in many states. Simple: if there are costs, then it isn’t a “no cost” loan.

26. David, consumer lending and health insurance are red herrings. Focus on the role of the loan originator.

    If indeed it’s true that a mortgage broker is paid for his/her knowledge (I believe this) then shouldn’t a mortgage broker be able to help the borrower select a mortgage product/terms that will NOT send a borrower over a cliff (default/foreclosure)?

    The banks will always come up with interesting products. No one is holding a gun to the heads of loan originators forcing them to sell one particular product over another.

    There is a reason compensation limits are here to stay. It’s because LO compensation maximization was put first….ahead of the best interest of the consumer. Now that’s being reversed.

    SLOWLY loan originators are being transformed into fiduciaries.

27. Its a brokers responsibility to lay out all possible options available to a potential borrower.compensation and foreclosures have nothing to do with each other. This might of been true years ago with negative am products but they are now gone. In the end it comes down to approving the borrower on a loan that they will be able to afford. Things such as ltv debt to income ratios are those main factors. If I give a borrower 5% and it pays me 1% and I charge them nothing up front and the loan is committed by the bank with a 52 back end ratio, who is wrong? Broker or bank? At the same time the borrower is free to shop in an open market to either a find a better rate or lower fees.
    Some borrowers spent more tome haggling of a car payment than there biggest purchase of there life.there home. In this soreal enviorment with no broker compensation from banks who do you think will pay. Ill tell you the Borrower . If the bank dosent pay a fee who pays? The borrower. I’m.all for change but no one is letting all the recent changes made with broker liscensing discloseres safe even game affect. In the end its up to regulators and banks to come up with products that are transparent. We can only sell what’s available to us. I can’t close a loan for a borrower with a 60 back end ratio if a product dosent exist. If the product did exist (which it did) am I at fault for selling it. People supposedly much smarter than I am come up with them.

28. Hi david,

    “compensation and foreclosures have nothing to do with each other”

    Not anymore.

    One of the ways I’ve heard of for compensating LOs would be your default rate.

    Just because a bank offers a loan where they’ll go up to 62 percent on the borrower’s second ratio does that mean we have to make that loan?

    What if there was another, better choice for that borrower?

    Nobody is holding a gun to anyone’s head forcing LOs to make bad loans.

    Go ahead and continue to blame the banks. That will get the industry nowhere.

    My dad always says sh*t rolls downhill in corporate America and it’s landing right in the lap of the loan originator.

    More, higher duties of care are being placed onto the shoulders of LOs to take better care of borrowers in selecting loan programs.

29. How about the fact that we being told that the loan officer cannot receive a % of the commission? Does this make sense? I forgot that I have to be told how I pay my employees.

    Oh and by the way, you mentioned in another post that we should not talk about other industries, but it doesn’t work that way. Compensation is for a service, just like the person that goes to Sears to buy windows and gets a different price than if they went to Anderson. This is a free market, this is not China. You argue about upselling rate etc, but you know on a $200k loan an 1/8 of a point is $15 per month. I am not sure how that is causing all of the defaults. I am curious how you would answer, why is it okay for a real estate broker to earn an unlimited %, which hurts the all involved in the transaction? Also, tell me whats worse if your real estate taxes triple in 10 yrs or your payment is $15 more per month?

    All of these rules in the fed reform talk about subprime loans that don’t exist anymore, they talk about option ARMS that done exist anymore, they talk about NO DOC loans that don’t exist anymore.

    Its another plan by congress that is a day late and a dollar short.

    Oh and Barney Frank, I forgot that he said that Fannie Mae was a fantastic and very stable and this is the guy we writes the fed reform bill…

30. It is interesting that so many have such a different view. While I agree that some reform was needed I do think that they have done that. I do not know of any sub prime mortgages to steer borrowers into. It is frustrating that the lenders that are still left are the lenders that were doing business the right way. It is frustrating that someone has decided that we make too much. If I was actually compensated for the work that I do my pay would be much different. I do not think that anyone has any idea of what it is involved in getting a loan approved these days. We not only get tax return, pay stubs bank statements from our borrowers we go back and verify from the employer that the pay stub is correct, we get tax returns from the IRS to ensure that they are the same that are filed. We verify every deposit and source of every penny in their account. Well this takes money and time. There are up to 22 people required to touch a loan to get it to close and the LO coordinates all of it. If we are going to limit the compensation or make it transparent that I want to know what the mark up is for the car I buy, the TV I watch and the food I eat. Is the government going to step in and tell me and protect me because I was too lazy to find out that the TV was less down the street or is it up to me as the consummer to make sure that I shop around? Also the loan left to steer to is a government loan. Or are Fannie and Freddie goverment loans now? It is frustrating that they are not researching all the information before they put it out there.

    If I have a loan at 2.5% with 6 points vs a loan at 3.5% with no points which is the best loan? According to the information I read the product I should offer is the 2.5% with the 6 points. There is just too much that goes into figuring the loan that I do not see how someone without the LO knowledge could decide which is the better loan.

31. Enough Enough Enough with all of the bleeding heart liberals in this country. First off let be be very clear I am all for fair and transparant disclosure for a borrower, but what are we saying for the majority of people buying homes? That they are illiterate? It is an indictment of the whole U.S. education system that a person who is buying a home can not read. In addition, they always have attorney representation on a purchase transaction and have the right to an attorney on a refinance.
    When did we become a Socialist country? This country was founded and built on “FREE ENTERPRISE”. The Carnegies, Mellons and JP Morgan built this country and we are an economic power because of them. If everyone has no incentive to grow rich through their innovation or work ethic then we have a society that espouses not to work hard because everyone is entitled to the the same material things. Well, until that is the case with every good and service that is offered in the U.S. then it shouldn’t be limited to one segment of an industry(Mortgage Origination). If you go buy a car no matter what make or model there wiull be someone who pays $250.00 per month for a lease and someone who pays $500.00 for the same car. The dealer and the salesman made more on the $500.00 lease than the $250.00 one. You buy a Louis Vuitton bag that costs $100.00 to make and is sold for $2,000.00. No one is calling for handbag reform. Why? Because the Senators can’t make headlines by reforming the handbag industry.In addition, they have no clue about the Mortgage Industry or why it needs to be reformed. They put out a “New GFE” that was less transparent than the old one and 100times more confusing.There wasn’t even a signature page. What a joke. Now curtail comp[ensation as a 4 year later knee jerk reaction to a housing bubble collapse. LUDICRIOUS. No question there were consumers who received loans they shouldn’t have and those programs were taken away by the Banks. Almost all Banks had Stated Loans and now there are a handful of Banks offering them. The reason is water seeks it’s own level. The Banks saw they were not viable and pulled the programs.Reforming what a borrower pays for a loan is not going to help what happened in the past and is penalizing and impeding a Loan Officer’s ability to earn a living.
    Most borrowers shop around. If you charge a client 4 points and the guy down the block charges 1 point then chances are you will not get the loan because you priced your services out of what the client is willing to pay. let the consumer decide and give the average american more credit. They do not need to be protected from what fee’s they are paying. Protect them from the Banker. Broker or LO that is baiting and switching their rate or costs. That is what needed reform not the fees charged.
    This Country has forgotten where it came from and what made us great. CAPITALISM and FREE MARKETS.

32. Ms. Schlicke, the problem is that the banks and lending institutions are using this to lower LO pay across the nation. I recently spoke with a 3 year experienced loan originator employee from J.P. Morgan Chase whose annual salary was $21,000 a year. He called to see if he could afford a 140,000 home with a payment of 1100 a month. If you understand financing, that is an absurd question for that would give him a 60% front ratio on his home and not financeable. However, he didnt know that. What you are promoting is that the largest purchase of most peoples life is managed by a entry level employee with no idea of what they are doing. Someone with no education, experience or ability to tell prospective borrowers that they need to come back to a realistic payment. Is that what you really want?

    I live in Ohio where there are many neighborhoods with home prices in the 50,000 price point and less. Some banks are paying their employees 35 basis points in the new pay structure. That give someone $175 to completely manage their loan origination process. Do you think that an employee making that sort of money is going to help you work on your credit problems, help the realtors manage the property repair process (many of which have no understanding of what to do if they dont have experience with bank owned properties), attain the best loan program for you, and help you get to the closing table. As a loan officer, I work with my clients sometimes for months to just support them in cleaning up the credit issues that they were not aware of. Am I only worth $175 per loan? If so, I will leave the industry and many of my experienced counterparts will as well. We are not out to “overcharge” customers as you infer, we offer a fair price for a service. If we cannot charge for a service, it will not be provided. And, the loser is the loan applicant. Ohio has laws that stop overpricing loans, there are many homebuyer education seminars people can attend. There are many other options to educate buyers than to penalize the few LO’s that offer a full service to their customers.

33. Consumer Choice. That is it. I have clients that are busy professionals and ask that I contact their invstment portfolio manager and their accountant and get everything I need. I meet them with completed forms at their home or office. Sometimes multiple times. I hand deliver commitments and attend many closings just to serve my clients. On the other side I have low balance FHA borrowers that do not know what a W-2 is and I walk them through the entire process.

    I am a professional and a borrower should have the right to choose to work with me based on the rates I quote them. The can compare rates, fees and service. Why should the service part be mandated out of thebuying decision. Choices and disclosure is what is needed, Not a mandated pay schedule designed to force buyers to the powerful banks. Many will be lost on the wash of the football field size porocessing centers.

34. Hi Greg. The FRB has done extensive reserach on consumer choice. Here you go:

    Federal Register /Vol. 75, No. 185 / Friday, September 24, 2010 /Rules and Regulations

    FEDERAL RESERVE SYSTEM 12 CFR Part 226
    Regulation Z; Docket No. R–1366 Truth in Lending
    AGENCY: Board of Governors of the Federal Reserve System.
    ACTION: Final rule; official staff Commentary

    Excerpt from Page 7:

    “When loan originators receive compensation based on a transaction’s terms and conditions, they have an incentive to provide consumers loans with higher interest rates or other less favorable terms. Yield spread premiums, therefore, present a significant risk of economic injury to consumers. Currently, this injury is common because consumers typically are not aware of the practice or do not understand its implications, and thus cannot effectively limit the practice. Creditors’ payments to mortgage brokers or their own employees that originate loans (loan officers) generally are not transparent to consumers. Brokers may impose a direct fee on the consumer, which may lead consumers to believe that the direct fee is the sole source of the broker’s compensation.

    While consumers expect the creditor to compensate its own loan officers, they do not necessarily understand that the loan originator may have the ability to increase the creditor’s interest rate or include certain loan terms for the originator’s own gain.

    Because consumers generally do not understand the yield spread premium mechanism, they are unable to engage in effective negotiation. Instead they are more likely to rely on the loan originator’s advice, and, as a result, may receive a higher rate or other unfavorable terms solely because of greater originator compensation. These consumers suffer substantial injury by incurring greater costs for mortgage credit than they would otherwise be required to pay.

    Injury Not Reasonably Avoidable
    Yield spread premiums create a conflict of interest between the loan originator and consumer. As noted above, many consumers are not aware of creditor payments to loan originators, especially in the case of mortgage brokers, because these arrangements lack transparency. Although consumers may reasonably expect creditors to compensate their own employees, consumers do not know how the loan officer’s compensation is structured or that loan officers can increase the creditor’s interest rate or offer certain loan terms to increase their own compensation.

    Without this understanding, consumers cannot reasonably be expected to appreciate or avoid the risk of financial harm these arrangements represent. To guard against this practice, a consumer would have to know the lowest interest rate the creditor would have accepted, and ascertain that the offered interest rate includes a rate increase by the loan originator. Most consumers will not know the lowest rate the creditor would be willing to accept. The consumer also would need to understand the dollar amount of the yield spread premium that is generated by the rate increase to determine what portion, if any, is being applied to reduce the consumer’s upfront loan charges.

    HUD recently adopted disclosures in (RESPA) Regulation X (24 CFR Part 3500), which implement RESPA and that could enhance some consumers’ understanding of mortgage broker compensation. But the details of the compensation arrangements are complex and the disclosures are limited.

    Pursuant to Regulation X, a mortgage broker or lender shows the yield spread premium as a credit to the borrower that is applied to cover upfront costs, but also adds the amount of the yield spread premium to the total origination charges being disclosed. This disclosure would not necessarily inform the consumer that the rate has been increased by the originator and that a lower rate with a smaller origination charge may be available.

    In addition, the Regulation X disclosure concerning yield spread premiums would not apply to compensation paid to a loan originator that is employed by the creditor. Thus, the Regulation X disclosure, while perhaps an improvement over previous rules, is not likely by itself to prevent consumers from incurring substantial injury from the practice.

    Yield spread premiums are complex and may be counter-intuitive even to well-informed consumers. Based on the Board’s experience with consumer testing, the Board believes that disclosures are insufficient to overcome the gap in consumer comprehension regarding this critical aspect of the transaction.

    Currently, the required disclosures of originator compensation under Federal and state laws seem to have little, if any, effect on originators’ incentive to provide consumers with increased interest rates or other unfavorable loan terms to increase the originators’ compensation.

    For example, some creditors may be willing to offer a loan with a lower interest rate in return for including a prepayment penalty. A loan originator that offers a loan with a prepayment penalty may not offer the lower rate, however, resulting in a premium interest rate and the payment of a yield spread premium.

    The Board’s consumer testing indicated that disclosures about yield spread premiums are ineffective.

    Consumers in these tests did not understand yield spread premiums and how they create an incentive for loan originators to increase consumers’ costs. Consumers’ lack of comprehension of yield spread premiums is compounded where the originator imposes a direct charge on the consumer.

    A mortgage broker may charge the consumer a direct fee for arranging the consumer’s mortgage loan. This charge may lead the consumer to infer that the broker accepts the consumer-paid fee to represent the consumer’s financial interests. Consumers also may reasonably believe that the fee they pay is the originator’s sole compensation.

    This may lead reasonable consumers erroneously to believe that loan originators are working on their behalf, and are under a legal or ethical obligation to help them obtain the most favorable loan terms and conditions.

    Consumers may regard loan originators as ‘‘trusted advisors’’ or ‘‘hired experts,’’ and consequently rely on originator’s advice. Consumers who regard loan originators in this manner are far less likely to shop or negotiate to assure themselves that they are being offered competitive mortgage terms. Even for consumers who shop, the lack of transparency in originator compensation arrangements makes it unlikely that consumers will avoid yield spread premiums that unnecessarily increase the cost of their loan.

    Consumers generally lack expertise in complex mortgage transactions because they engage in such mortgage transactions infrequently. Their reliance on loan originators is reasonable in light of originators’ greater experience and professional training in the area, the belief that originators are working on their behalf, and the apparent ineffectiveness of disclosures to dispel that belief.

    The Board believes that where loan originators have the capacity to control their own compensation based on the terms or conditions offered to consumers, the incentive to provide consumers with a higher interest rate or other less favorable terms exists. When this unfair practice occurs, it results in direct economic harm to consumers whether the loan originator is a mortgage broker or employed as a loan officer for a bank, credit union, or community bank.”

35. Jillian, Jillayne,
    Perhaps you should disclose your compensation for writing this article….Were you paid by the number of inaccuracies or the number of false accusations? If no one read your article would you have been at risk of making no money at all? Was your compensation based upon the value you brought to your employer or to the reader? Should everyone’s compensation for every thing be known by everyone? Just my two cents on your opinions

36. Hi Jim,

    Educators did not play a part in sending the U.S. into a housing bubble. Educators did not play a part in predatory lending now did we? It really isn’t an apples to apples comparison but nice try. Instead of attacking the person, (ad hominen) attack the argument.

37. Jillayne: You failed to answer Jim’s question. How do you receive your compensation and what is it? I doubt you will give a full revelation to this but you have no problem pushing other people to reveal all of their compensation. How do we know who is paying for your site and why? Perhaps educators were partially at fault for the mortgage problem since most of what caused the problems was perfectly legal but possibly unwise or underinformed.

    You were less than honest in saying you have been in the mortgage business for 25 years unless your resume is omissive for some reason. I can tell you that I receive no compensation for my work for brokers and originators. Can you say the same? I’m not trying to be mean, but let’s all be honest in our discourse.

38. Jillayne: Do you actually consider yourself to actually have a complete understanding of the mortgage industry…from your article, I can you are without a clue, and here is a joke for you, which pretty well sums up this whole LO socialistic rule.

    (Sorry for the length of the “joke,” but it is relevant…)

    FDA Revamps Waitress Compensation Due to e-coli Poisoning
    Regulators are proposing a change in how food servers in the United States are paid due to recent e coli poisoning at a local restaurant. E Coli (short for “Escherichia coli” ), can cause serious food poisoning in humans and the bacteria is responsible for occasional product recalls due to unsanitary conditions at slaughterhouses around the country. Clearly though, it is the fault of the food server known as the “Waiter” or “Waitress”.
    Here is a breakdown of the new regulation and the main components.
    Waiters / Waitresses will no longer be able to have their tips or other compensation based on the type of the meal they serve, the server’s experience level, or service levels to the customer. For example: a Waiter or Waitress may not be paid more for a steak dinner than a Shrimp or chicken dinner. A Waiter or Waitress must be paid the same regardless of whether the food comes out hot, warm, or cold or due to any delay in food preparation while the server was on break.
    When customers order their meal, they must be presented with a minimum of 3 different menus from competing restaurants in the area.
    The customer must wait 3 hours to order their meal after signing a disclosure showing what type of salad, starch and vegetable will be served with the meal. If the restaurant owner provides these “ancillary” items – he may not charge a higher margin on one item over the other.
    The waiter/waitress must be either paid by TIPS from the consumer, or by credit card – NOT by BOTH.

    ***Note that for these purposes, both the Restaurant itself AND the Wait Staff are considered “Servers”, thus – if the Credit card option is used to pay the cashier (owner of the restaurant), then NO TIPS may be accepted by the waitress. A “Server” may not “Steer” a consumer into a meal by a certain animal type if they will receive greater compensation from that meal, than in other meals which may have been offered the consumer – unless the offered meal is in the consumer’s best interest.

    It is unclear within the proposed law how far this legal definition goes, and the FDA is offering no clarification. If the same steak dinner is available 2 blocks away, is it in the best interest to send the client to the competing restaurant? All questions that have severe penalties will only be clarified during future inspections of the restaurant, by the Food Inspector. Lastly, in another unrelated law that is being considered called QRM, or Qualified Reluctant Meals- certain Restaurant owners should be aware that they may have to eat 5% of the consumers’ meal prior to serving.

39. Come on people. Why the need to dump on the author of the article?

    Her insights reflect that she is very familiar with the mortgage process and the whole “Yield Spread” game. In fact, some of you commenting look like the ones who don’t have a clue.

    Get over it. Yield Spreads are gone. Huge money originating is gone.

    The reasons are pretty simple. People were overpaying for mortgages. They didnt understand the process and were paying thousands of dollars more that they should/could have for a mortgage.

    Quit shooting at the messangers and start planning on how you are going to survive. Or get in another business.

40. I do say Luke gets it and has made the transition. He’ll survive.

    John, You’re right I mis-counted. It’s actually 29 years. LOs would only attend sales-related sessions until the state and finally the feds mandated education and training. One of my students had been originating for 5 years and had never sent out a Good Faith Estimate. Another thought I was going to lecture on the e-coli virus because he had never heard of the Equal Credit Opportunity Act.

41. Jeff, the joke’s old. Buying a meal at a restaurant and selecting a mortgage loan are radically different purchase decisions.

42. Jillayne, the joke is the new compensation. The girlfriend works at a Banks operations dept., they DO KNOW their SRP’s, the are contractually obligated to deliver so many loans…and like brokers, each loan delivered with a certain rate – pays a certain SRP – get over yourself, your not the mortgage guru you think you are…….

43. Good grief “Jeff”. First of all your little “joke” was not funny. It was also not really a relevant comparison. Comparing a mortgage transaction to a meal at a restaurant is a bit of a joke….but not in the way you meant it.

    What exaclty is your point? The author is just pointing out the new rules and what they mean….and her take on why they have been written they way they have.

    Get over it. The mortgage business has changed and it is never going back to the way it was. Yes…some banks earn SRP’s. That is not an earth shattering bit of news. The question is ….so what?

    Brokers will no longer be earning large yield spreads by putting people in loans at a higher rate in order to make more money for themselves. People HAVE been paying more than neccessary for mortgages.

    The idea that this extra 2-3-4 thousand dollars was the cost to get this excellent service by LO’s out there working in the public good and doing such an outstanding job of getting peoples these wonderful mortgages is the REAL joke.

    People will be willing to be LO’s for less money and continue to give good service and probably make a decent living doing so. If you are not one of them…it’s real simple…..find a new line of work.

44. What is upsetting to me is there are many many responses here and you have some snide come back to every one. No compation for any of them…??

    The real estate industry has been getting it’s teeth kicked in since 2006 and there has not been a bail outs for a single real estate company, not one appraiser, or mortgage company. The very banks (and Wall Stret) that introduced the risky loan products got the bail out money without any consequences(and yes most have paid it back for their own self serving reasons CEO compensation… ironic…)

    Can you list one mortgage brokerage firm (non-direct lender) that is the cause of the mortgage melt down…

    “We” who have hung on making less and less every passing year waiting for the business to get back to “normal”. Just one more year… well now it has been 4+ years and for all of us that have hung in there and now we get our compensation regulated/cut…???

    If an attorney had to put more time into a client he/she “bills” the file. If a contractor has a job that turns out to need more work than originally thought he bills the client. But LO’s are not allowed to… The attorney and the contractor both collect monies upfront retainer fee or deposit for materials and labor. You portray loan officers as order takers. One of the big complaints of realtors these days is the LO at the bank didn’t prequalify/ask the right questions up front which is always a lack of experience and intellectual capital that should be properly compensated just as top attorneys, doctors, mechanics, accountants receive/deserve/warrant/demand. Contrary to your depiction of LO’s we are not data entry people and should be recognized for our knowledge of how to structure a home loan so people can purchase a home inspite of their qualifying challenges. I have saved clients tens of thousands of dollars by knowing when to use Freddie Mac over Fannie Mae and the borrower would be happy to pay me a few thousand more just as a tax accountant or attoney would deserve compensation for saving clients money.

    You paint all LO’s as crooks who dont get to deceive their clients anymore, very offensive.

    Their are thousands of LO’s, appraisers, and reltors that have lost everything due to the great recesion. Reality is that real estate has been in a huge depression since 2006.

    You make valid points but you show such a bias it is as if you co-wrote the amendment.

    Many of the people that have given input make dead on examples of how this new amendment is not only unfair but truly is not warranted.

    It is in very poor taste to argue and debate with the above persons in the manner that you have.

45. Jillayne:
    After 25 years of providing moral and ethical financial advice to home buyers and those will to refinance, I still run into ignorant individuals like you. And yes, one of the commentators above got it right: Everytime the Gov’t tries to do something for the consumer it ALWAYS COST THE CLIENT MORE. Stop spewing incorrect infomation to the public.

46. Hi Mike,

    What exactly is incorrect in my blog post?

    Yes, when the government intervenes the cost will be passed on to the consumer…a.n.d…the idea behind capitalism is that companies will work hard to be more efficient. Some consumers will shop for the lowest cost loan and those companies that are more efficient will win that customer’s business.

    So what exactly am I ignorant about and what exactly is incorrect?

    Thanks for stopping by.

47. Jillayne,

    I am a top producing originator (roughly $40M annual volume/roughly 200 units). I will admit that the hyper regulated state of our industry has created a more transparent process for the consumer. In large degree the days of bait and switch are behind us. Most lenders follow regulations to the point of insanity. I have no problem at all with these changes. From a comp standpoint I am fine with my personal earnings under the current system ($250Kish). With this being said it is clear that the results thus far have been a consolidation in the industry among the largest financial institutions. YOY the largest 5-10 lenders are chewing up market share. The spreads between MBS and benchmark yields to rate are at their widest point on record, a sign that cost to the consumer has increased. Moreover, the consumers that have seen the biggest jump in cost are those with loan amounts below $80K (primarily because lenders price in loan amount adjustments to already steep margins). So I guess the point that I am trying to make is that the current environment of largely ethical lending could have been achieved without the federal government specifically legislating a compensation component. The laws regarding “ability to repay”…great. The laws regarding no change in lender fees from GFE to close without a valid change in circumstance…even better. The dance to underwite a file ad nauseum to ensure there is not the slightest variance from GSE guides….makes for higher quality paper on the whole. But the idea that the federal government should specifically legislate the manner in which the employee of a private company is compensated…a bit heavy handed if you ask me. I can tell you that folks who need the most education about the process…regrettably get the least because the most skilled loan officers simply cannot dedicate the time to a file that it takes based on our current comp structure. Again…I am truly not opposed to nearly all of the changes in our business. We failed the country and brought much of it on ourselves. Yet I hate the business decisions that we as originators have to make when a young couple calls expressing interest in a $50K short sale. These are deals that I would happily close at a fair level of comp. In today’s market these customers are pushed to the side or land in the lap of an unskilled LO so hungry for a scrap that they will take the app and botch the deal more times than not. Mark my words…at some point our current rate environment will change. The little guy who can’t keep up with the new volume driven business model will die. We will be left with very few large institutions holding the key to the mortgage world. When this happens…we will all lose (the consumer will be the biggest victim). I hope that I am wrong…but I don’t think so. This all could have been avoided by taking the compensation piece out of the bill. Believe me…the biggest supporters of this change were Wells, Chase, BOA, etc. I am not sure it could have been written better if they had done it themselves…come to think of it they probably did. I have chosen to align myself with one of the largest lenders in the marketplace because until they finish squeezing the last shreds of wholesale competition out of the market, frankly it is the best place to make a good living these days. But looking out another 5-10 years, especially if they ever succeed in getting rid of the GSE’s…man…talk about a profit center the likes of which you can’t imagine. Like I said…this bill as a whole has made the process more transparent, but this little amendment ensures that only the institutions most responsible for the existing crisis have the means to exist. So much for TBTF…

    Thanks,

    Jason

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