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By Jon Bodan
The Perpetual Financial Group Inc.
The disappearance of
this payment source
would have drastic
The federal reserve board’s pro- posed changes to Regulation Z/ the Truth in Lending Act (TILA)
contained in docket No. R-1366 could
harm the mortgage-brokerage business
as we know it. The Fed will accept comments on the proposed change through
Dec. 24 at sctsm.in/TILAcm.
Brokers have weathered ill-advised
change after ill-advised change in the
past few years and now face the specter of further harm at the hands of the
Fed. The loss of yield-spread premiums
would create many issues.
For starters, if brokers can’t be paid
based on the terms of deals they deliver to lenders, how are they going
to be compensated? In many cases,
brokers will have to charge borrowers
greater fees. Many brokers make difficult deals happen for clients in need.
Those deals can take months to close,
and brokers must make a certain percentage per deal to stay in business.
In addition, the elimination of YSP
would further tilt the playing field toward bankers, who could still receive
premiums and income from marked-up
rates sold to borrowers.
The loss of brokers ultimately will
harm consumers, who will be faced
with fewer loan options in a less-com-petitive mortgage market. In addition,
the proposed rule could decimate the
broker industry and render brokers unable to pay their loan officers. Thus,
thousands of people could be out of
work, with some signs pointing to Regulation Z changes as a factor.
When mortgage brokers complete a
loan for a client, they buy the money at
wholesale — at the par rate — and sell it
to their clients at retail, thereby earning
YSP. This keeps brokers from having to
charge more money upfront, which bor-
rowers often wouldn’t be able to afford.
The payment of YSP allows:
brokers • to make a fair amount for
their efforts; and
borrowers • to complete a transaction
that fits their needs.
If clients aren’t satisfied with what a
broker offers them, it’s their responsibility to seek a better deal elsewhere.
None of this changes brokers’ need to
pay for office space, insurance, audits,
licensing and bond fees, etc.
Moreover, brokers who fully and
clearly disclose their firm’s compensation to clients must discuss with and
disclose to borrowers their collection
of YSP on multiple occasions, including
current good-faith estimate (gfe); •
new gfe, • which takes effect this
coming Jan. 1;
mortgage loan origination agree- •
brokerage business contract; •
u.s. department of housing and •
urban development (hud)-1 settle-
attorney closing instructions • that
borrowers normally have to ac-
regulation Z/tila disclosures • that
lenders send to borrowers after
Brokers could say directly to clients:
“I get paid by banks to place your loans
with them. Many lenders compete over
my business as a broker, and in some
cases, they pay me to place your loan
with them.” By and large, clients don’t
care and won’t care.
— past and current — to comment on
the proposed rule. Note that without
their help, your business and the opportunities offered by mortgage brokers could disappear.
Explain how self-employed borrowers could find themselves unable to get
financing because of complex financial
statements and out-of-the-ordinary income streams. Describe the risk of losing earnest money on time-sensitive
purchase transactions and the perils
of trying to close a loan through a bank
employee with little to no vested interest in the transaction.
Beyond commenting to the Fed —
and encouraging people inside and
outside the industry to do the same —
contact your elected officials. You can
find your House and Senate representatives through house.gov, senate.gov
Now is a challenging time for the
mortgage industry, and brokers must
do everything in their power to help
keep things from getting worse. The
consequence of not acting could be the
end of your business.
Time to act
Now is the time for everyone in the
mortgage industry to fight the Fed’s attempt to eliminate YSP. The Fed already
more or less owns our banks and financial markets. Are we going to stand by
and let them own us, too?
First, consider joining the National
Association of Mortgage Brokers
(NAMB). NAMB volunteers often are
small-business owners, and they want
our industry to thrive. The dues members pay to NAMB help fight for our interests in Washington, D.C.
Second, you must personally speak
up. Comment on the proposed rule.
When you do comment, make sure to
explain the destructive impact the rule
would have not only on the brokerage
industry but also on consumers.
Third, educate your peers, business
partners and clients about how the proposed rule will harm small businesses
and consumer lending activity, and
about how it will increase costs for consumers. Ask your partners and clients
No matter how you look at it, YSP helps
keeps the mortgage industry viable.
It underpins employment for thousands
of professionals and allows mortgage
consumers increased choice. If the
government takes away YSP, it will hurt
brokers and consumers and give banks
an indirect bailout by eliminating their
competition. In turn, the door will open
for further abuses that harm consumers
as the result of a lack of competition.
This abuse won’t always be obvious,
but it will be widespread. It will manifest itself in the form of poor customer
service and reduced consumer choice,
and it will be evident in the shunning of
borrowers who need extra assistance
because of a challenging property or
damaged credit issues. Self-employed
borrowers could face some of the biggest troubles. This would deepen the
effects on small-business, one of the
most-important growth engines in the
Mortgage brokers and their employees provide a valuable service to
consumers and the overall financial
health of this country. The Fed’s efforts to eliminate YSP should appall all
brokers and cause them to speak up. If
you don’t, you’ll have no one to blame
but yourself. •
Jon Bodan is a broker at The Perpetual
Financial Group Inc. in Atlanta. He’s been
in the financial-services industry for more
than 15 years and has owned his firm since
2002. He has seen the business from
banker and broker standpoints. Bodan’s
residential and commercial mortgage
practice works almost exclusively with
referred and repeat clients. Reach Bodan at
his office at (770) 972-4955, ext. 305, or via
e-mail at email@example.com.