SAD, SAD DAY FOR AMERICA!

By
Mortgage and Lending with D A Griffin Financial.LLC NMLS 6380

SAD, SAD DAY FOR AMERICA! The court upheld the Federal Reserve's Loan Officer Compensation Rule set to go into effect on April 01. No fooling!

National Association of Mortgage Brokers and National Association of Independent Housing Professionals both had law suits to delay the implementation of the "Rule", both were denied today.

There were numerous supporters of a delay in the Senate and Congress along with the Small Business Association, who could see small business suffer at the hands of this "Rule"

I don't have to tell anyone how difficult the housing market has been across the nation. As Loan originators and Realtors, home buyers and sellers, we KNOW it. We are living it!

The Federal Reserve's Loan Officer Compensation Rule does a few things. The intent is to protect consumers, the result will be quite the opposite. Some Facts:

  • In particular every loan originator no matter where they work will be paid a set percentage of every loan they originate. They cannot vary from one borrower to another, however, every originator can cut their own deal with the employer. Depending upon who answers the phone at the bigger banks a borrower could be quoted different rates. Interesting.
  • The loan originator can no longer pay ANY costs or fees or reduce a rate for a borrower.
  •  The really good, stable borrower will pay just the same as the one who is rocky and barely qualifies for a loan.
  • There will be floors and ceilings in place. The smaller loans may be difficult to place if they fall below the floor. The floor is not negotiable. The ceiling will be set by every individual loan originator as to the max they want to make.
  • To some degree this "Rule" is not income limiting for a loan originator, but the originator may just as likely make MORE money than they want to. On big loans they cannot take less than the ceiling, even if they want to, and most of the loan originators want to.
  • Prior to April 01, a borrower could ask to pay a somewhat higher rate and come to closing with less funds. Now that will be harder to accomplish, depending a lot of factors. A broker cannot build those costs into the yield spread premium. In some cases there may be some money that can be credited for SOME of the closing costs, but not the latitude that has been available.
  • Pricing is very complicated now. As has been the case with every change made to the home financing process it makes it harder for a consumer to understand.
  • As is customary the banks will not show the SRP they make when they sell the loan, nor will the originator at the bank be required to say what he is being paid. Brokers will have to disclose everything.

 

This ruling will have one lasting impact. It will reduce competition. There is an expectation that brokers will close up. Less competition will be higher interest rates. Since originators will no longer be able to "save" a loan with their income, lenders will pad the rates to hold back money in case they have to step up and save the loan. Higher cost to the consumer; Fewer options.

What the Federal Reserve and the courts miss here is that mortgage brokers typically SAVE the consumer money. It is mystifying (a) why this Loan Officer Compensation Rule is necessary and (b) how it can be implemented when they are essentially telling a private company  how much to pay their employees.

One has to wonder if there is a method to the madness. The appraisal independence rule has wreaked  havoc with real estate transactions. Now this latest rule will tighten an already struggling housing market even more. Lastly, there is the question of who is next. A sad, sad day for America.

 

 

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Rainmaker
712,129
Will Nesbitt
Nesbitt Realty at Condo Alexandria - Alexandria, VA
Nesbitt Realty is a family-run brokerage.

I can just imagine it's impacts. Sad indeed.

March 30, 2011 09:07 PM #1
Rainer
41,556
Art Hademan
Century 21 Real Estate Center - Mount Vernon, WA

Dora,

Lots of blogs on AR talk about the market coming back and all things looking rosier and rosier.

With the new regs coming down from Fannie, Freddie and FHA combined with this action it would appear that we're in for a long hot Summer.

None of this is good for us in the industry nor our buyers and sellers but it looks pretty good for the big banks. Again!

Gotta turn around soon or things are going to just drag on and on and on!

Keep smiling!

March 30, 2011 09:12 PM #2
Rainer
405,885
Randy Ostrander
Lake and Lodge Realty LLC - Big Rapids, MI
Real Estate Broker, Serving Big Rapids and West Central MI

This administration is bound to "Fix" things right into a depression. It reminds me of the TV show where the school aged children take over the town politics for a day but we have to live through it for 4 years.

March 30, 2011 09:42 PM #3
Rainmaker
157,969
Vicki Pedersen
Pedersen Real Estate - Riverside, CA
Providing Exceptional Real Estate Service

I was very disappointed to find out that the court upheld this new rule on loan officer compensation.  It seems like the more the government gets involved to "protect" the consumer, the more the consumer gets hurt  (getting loans is more difficult and more expensive for the consumers).  Why can't the government see this and how they are hurting the consumer (and the economic recovery of the nation)?                                   

March 30, 2011 09:43 PM #4
Rainmaker
125,411
Dora Griffin
D A Griffin Financial.LLC - Fort Thomas, KY
NMLS 6380

Randy it sure feels like it. Seems they are way out of touch.

 

Vicki, that is the way it works - government intervention is slowing down real estate recovery. Not to mention all the careers of good reliable hard working invidviduals that have been destroyed in the name of "fixing things".  I find it really scary that consumers will have less choice, resulting in higher costs; we simply cannot afford it. Americans are struggling.

March 30, 2011 10:16 PM #5
Rainmaker
125,411
Dora Griffin
D A Griffin Financial.LLC - Fort Thomas, KY
NMLS 6380

I should clarify, neither floors nor ceilings are negotiable once set. Except, lenders will allow adjustments at some interval, perhaps quarterly, then maybe less often. The problem is a small broker can lose his/her shirt in a few transactions. Set the income too low, there is not enough money to operate. Set it too high, he can't compete with the banks who get paid coming and going.

Banks and mortgage bankers can earn yield spread when the originate the loan and earn service release premium when they sell the loan into the secondary market. Brokers can only earn yield spread.

My average loan amount is $110,000. About 50% of the loans I did  last year were well under that mark. The question is whether to set the percentage  high because of small loans or set it lower to benefit the bigger loans that occur less often. Either way it is a losing proposition for the small shop.

 

March 30, 2011 10:26 PM #6
Rainmaker
201,221
Tom Waite
Thomas Waite Real Estate Broker - Cypress, CA
So Cal-Apartment Bldg Investments

Dear Dora:

Sorry to hear the bad news and keep blogging to let us know what's happening with these laws.

That's the big problem with the current government...it's like a box of chocolates...you never know what your gonna get from day to day.

Keep on blogging.

Tom

April 02, 2011 11:50 PM #7
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Rainmaker
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Dora Griffin

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