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.