Harvard Law School
Photo: Harvard Law School
By Jennifer Landree
As yield-spread premiums (YSPs) face greater government scrutiny, some groups have proposed
more regulation. Others want to abolish them entirely. We talked with Harvard professor Howell
E. Jackson, who studies financial regulation and consumer protection, about compensation
practices and the future of regulation and the housing market.
You’ve been critical of brokers receiving YSPs. What is the biggest problem with them, in
your view? Nondisclosure. I don’t think anybody defends the use of compensation that’s not
disclosed. Certainly, there have been cases of firms that have not been straightforward in their
disclosure of YSP compensation. Also, [the U.S. Department of Housing and Urban Development
(HUD)] has permitted for many years a very confusing form of disclosure described as “paid
outside of closing,” which most borrowers don’t understand comes from them.
Part of the more general problem is consumers just have a difficult time understanding the
economic significance of payments that are made on a monthly basis.
How can brokers, legislators and consumers come to a compromise on YSPs and
compensation for mortgage brokers? The trend that both the Federal Reserve Board and HUD
are looking at is clear disclosures upfront of the amount of compensation that the originator will
receive, with the dollar signs in current terms that are clear and agreed to before the borrower is
locked into an arrangement.
What problems would you say still exist with how compensation is regulated? The chief problem
is how you treat equally different distribution channels: direct lenders as opposed to originators.
It’s important that the solution be comprehensive and covers both channels. There are ways of
developing shadow-pricing of the wholesale value of a loan that would yield an implicit YSP for
direct lenders that could be used to get similar disclosure for all distribution venues. That’s the
trick, imposing equal disclosures and ethics for brokers and direct lenders, and that’s the regulatory
challenge that still hasn’t been worked out.
The truth of the matter is that [mortgages] are a valuable distribution mechanism. There should be
a way to have relatively low-cost origination agencies and broker vehicles, like the industry provides.
It just has to be done in a way that consumers understand and that is not rife with conflicts.
What should the Obama administration do to reform and invigorate the housing market?
The new administration has to deal with some conflicting impulses. It needs to get home financing
going again, and [Fannie Mae and Freddie Mac] are going to continue to play a big role. But we
also need to get the private side working again. Whether [the vehicle is] going to be traditional
mortgage-backed securities, securitization processes, something more like the covered bond
schemes of Europe or something new entirely remains to be seen.
What’s your outlook for this year, overall? I hope that we can begin to stabilize the housing
markets. It’s reasonable to expect that the government is going to have a very large role in that
process. But hopefully 2009 will be a year of substantial modifications, with the restoration of
more traditional private financing. The backlog of distressed loans has got to be the top priority,
and the new financings will come after that.
Jennifer Landree is a Seattle-area freelance writer. For questions or comments, e-mail firstname.lastname@example.org.
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Can you relate?
… in March’s Scotsman Guide
When you read business books, examine
how they’re written — not just what has
been written. Authors seem to write brilliantly because they have brilliant ideas. In
truth, brilliant ideas often come to these
authors because their stories and analogies
reveal how things people don’t understand
are like things they already know. Think
about this as you relate products to customers. Know what prospects relate to so they
can relate to you.
Online? Check out current and past editions of
Scotsman Guide at scotsmanguide.com.
E achmonth, Helping Hands featuresa
m ortgageprofessional orgroup thathas
volunteered to lend a hand to others in need
By Ivanna C. Sukkar
Name Daniel Jacobs, CEO, 1st Metropolitan Mortgage
Project Plant a Billion Trees
B S yitIevaBnrnaazilC. Sukkar
H H o oww WAsitphahrteaodfe1rs.t Metropolitan’s BrightGreen Mort- WAsitphahrteaodfe1rs.t Metropolitan’s BrightGreen Mortgage promotion, the company will help plant a tree for ev-
W ithout header.
ery green mortgage that its participating branches close,
Jacobs says. The trees will be planted in Brazil’s Atlantic
Forest through the Nature Conservancy’s Plant a Billion
Jacobs says that the company’s Bright Green Mortgage promotion encourages its branches to adopt environmentally
friendly business practices, such as paper elimination, recycling, use of recycled materials and more. Jacobs says
48 of the company’s branches participate in the promotion, which began this past October and will run through
April. The promotion will culminate with a sweepstakes
drawing for a Toyota Prius.
Jacobs says the trees will be planted in the names of the
borrowers whose loans close through the BrightGreen
Brazil’s Atlantic Forest will be the site for as many as 1 billion trees planted as part of the Nature
Conservancy’s Plant a Billion Trees campaign, aided in part by 1st Metropolitan Mortgage’s
BrightGreen Mortgage promotion. Photo: The Nature Conservancy.
Why Jacobs says he started 1st Metropolitan’s BrightGreen Mortgage promotion to help raise awareness
among the company’s branches nationwide for the need
to be more environmentally conscious.
He adds that while the promotion itself focuses on making
small changes to everyday business practices to be more
environmentally friendly, the idea to plant trees for every
mortgage closed came because the company realized that
not every loan can be completely paperless. As such, “we
wanted to regenerate the paper we do use,” Jacobs says.
Impact At press time, 1st Metropolitan branches have
closed 378 mortgages through the BrightGreen Mortgage
promotion, Jacobs says; thus, the company will help plant
at least 378 trees through Plant a Billion Trees.
Through the Plant a Billion Trees campaign, which began this past April, the Nature Conservancy is working to
restore 2.5 million acres of land in the Atlantic Forest by
planting 1 billion trees in the next seven years, according
to its Web site.
As of press time, Plant a Billion Trees had planted almost
1.2 million trees in the Atlantic Forest, according to the
campaign’s Web site.
Ivanna C. Sukkar is a