Why single out mortgage brokers?
Letter to the Editor
By Inman News, Friday, July 31, 2009.Re: 'Fed may ban loan-originator incentives' (July 28)
Dear Editor:
Why is it that the mortgage brokers are always the group singled out under the guise of protecting the consumers? We are the only organization that is required to disclose the amount of profit we are earning on every transaction that we negotiate.
When I go to the grocery store I have no idea the profit Giant Eagle makes on a loaf of bread. Mortgage brokers give consumers a choice. I do many transactions where I cut the yield-spread premium to make the deal, and this helps the consumer.
My rates are always better than the local bank. This is an injustice to honest, hard-working mortgage brokers and consumers. I wish that just once our representatives in Washington would consider all the consequences and how it affects lives before they pass these rules willy-nilly. I am enraged.
Marianne Sacco
CLS Settlement Services Inc.
Pittsburgh, Pa.
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Submitted by Jillayne Schlicke on July 31, 2009 - 5:00pm.
Hi Marianne,
The problem isn't that brokers are required to disclose their yield spread premium.
Clearly this has been the law for quite a while.
Instead the problem was that brokers by and large failed to:
*Properly disclose YSP to the consumer (this is still, to this day, one of the most common violations in my state)
*Accurately explain YSP to the consumer
*Provide the consumer with re-disclosure documents prior to closing when the broker jacked up YSP from application to closing.
As I have been saying for many years now, if an industry can't self-regulate ethical conduct the government will do it for you.
Surely there are many mortgage broker LOs who never did any of these things. Unfortunately, any industry is judged by its lowest common denominator.
Brokers and LOs have an amazing opportunity to transform their reputation. Since brokers are the only ones who must disclose all costs, I see this as an incredible sales advantage.
The broker/LO who is brand new and knows nothing is going to have a hard time justifying a multi-thousand dollar payday.
An experienced broker/LO will have very little problem justifying his/her fee.
Submitted by M C on August 3, 2009 - 5:38am.
Jillanye a little background is in order to assist you in understanding YSP disclosure origins and the effects on consumers. Bottom line, YSP is not a cost to consumer. Closing cost and interest rate is their final cost. That is what consumers need to have disclosed to shop. Obviously, the shopping should be with trusted (not self serving companies that advertise) origination sources.
November 2, 1992 HUD created a rule requiring YSP/SRP disclosure in an attempt to reduce competition to banks. HUD made a claim that this would not have a adverse impact on the consumer, small businesses or competition. This abuse of regulatory power created so much confusion, lawsuits spread across the country as consumer groups attempted to take advantage of this bad rule. They claimed that YSP were kickbacks in violation of RESPA had occurred. Over several years HUD had to keep issuing statements attempting to clarify the rule and the Federal courts concluded YSP is not a kick back.
February 27, 2004 Federal Trade Commission (FTC) issues the only government agency that has done a study on HUD's YSP disclosure rule.
Website: http://www.ftc.gov/opa/2004/02/mortgagerpt.shtm
This is what they said:
FTC Staff Concerns
about the YSP Disclosure
• Unnecessary (final cost is what matters)
• May confuse consumers (lead to a focus
on compensation rather than final cost)
• Result in worse loan choices
• Disadvantage brokers
• Harm competition
YSP/SRP is not related to a specific interest rate. If it was, every wholesale investor and Fannie & Freddie would have the same YSP/SRP for a specific interest rate. They don't and consumers need not be worried about YSP. When they shop, they shop based upon final cost. That is why non mortgage broker originations do not disclose how they arrived at final consumer cost.
YSP should not be disclosed.
This conversation should be based upon facts and not emotional unsubstantiated rhetoric.
Submitted by Sean OToole on August 3, 2009 - 7:57am.
YSP = profit margin... why exactly should any business have to disclose that.
The real issue is that Wall St. rigged YSP to incentivize mortgage brokers to sell certain products over others. Which led to some brokers to sell products which were best for them rather than best for the customer. But this is true for sales people in almost every industry.
What the YSP premium is really about in my opinion is an effort by banks to further consolidate all financial services under a few large players by villianizing mortgage brokers. Afterall what bank would want someone with actual expertise in the field actually comparing products in detail across institutions - that might lead to competition.
As this country continues to decide to consolidate more power in organizations that are already too big too fail don't forget to use your powers of critical thinking to look for the root cause. In this case:
1. Mortgage brokers don't set the YSP's to incent the bad behaviour... banks and wall st. do.
2. Banks benefit if mortgage brokers are eliminated by taking the business themselves.
Sean O'Toole
Founder / CEO
ForeclosureRadar.com
ForeclosureTruth.com
Submitted by M C on August 3, 2009 - 9:26am.
Sean,
Originators for mortgage brokers originated the same loans as did bank, mortgage bank, and credit union originators.
When a consumer is shopping for a loan, they study interest rate and their cost to obtain the loan. YSP is not what they shop.
Again and Again, we must understand that there is no YSP that goes with an interest rate. All investors (including banks, mortgage banks, credit unions, Fannie & Freddie) apply their own internal numbers to YSP/SRP for the same interest rate. When a consumer shops a Fannie loan vs. a Freddie 6% 30 year fixed rate, each will have a different YSP/SRP associated on a specific day at a specific time. The interest rate & closing cost are different for each investor.
So please, obtain knowledge on the origins of YSP and its disclosure. I refer you to the information provided in my response to Jillayne. YSP/SRP have been around for decades, long before November 2, 1992 HUD rules.
Submitted by Bruno Skopinich on August 3, 2009 - 6:03pm.
The reason the brokers get the Short-End of the Stick is because... mortgage brokers Do Not have as much Lobbying Dollars as your competitors (the Bankers)
Because of front page media hysteria, the politicians are looking for blood. Since you guys are the low end of the financial power, tag.... you are it.
Right or wrong does not fit within this dilemma.
Capci?
Submitted by Jillayne Schlicke on August 3, 2009 - 9:25pm.
@ MC "YSP is not a cost to consumer."
YSP is a cost to the consumer in the form of a higher interest rate paid over the life of the loan.
We had brokers putting people into loans at a much higher interest rate in order to take the difference (after closing costs were paid) as their own income. The "no fee" loan was a total and complete scam! The homeowner thinks they are getting a loan with no fees! But there were PLENTY of fees including a nice fat YSP for those broker/LOs.
MC, Not sure what you mean by this: "consumers need not be worried about YSP. When they shop,"
MC, the problem here is not that a YSP is earned....the problem is that the some brokers LOWBALL THE GOOD FAITH ESTIMATE and quote low rates, low fees, one day of interest, half the title insurance and escrow fee....just to make their GFE look the lowest!
It's the fair disclosure of YSP and an honest explanation of what part of the YSP is going into the broker/LOs pocket.
Telling the consumer to "not worry" about YSP something a broker would say when they don't want the consumer to know how much they're making.
In some states now, Broker/LOs owe fiduciary duties to their clients and have a high duty to clearly explain all fees to their clients. "don't worry about this fee" is not something that I can support.
Submitted by Jillayne Schlicke on August 3, 2009 - 9:26pm.
@Bruno, Right or wrong does fit with this dilemma though I absolutely agree with your political viewpoint.
When Broker/LOs were earning 10, 20, 30,000 dollars per file (with no experience, no training, no education, just sales coaching) all across the U.S., we have a problem.
When the YSPs were not disclosed on the inital GFE only to appear on the HUD I at signing, giving the borrower no chance to challenge the high YSP, we have a right/wrong state/federal law violation.
Submitted by Jillayne Schlicke on August 3, 2009 - 9:31pm.
@Sean,
"1. Mortgage brokers don't set the YSP's to incent the bad behaviour... banks and wall st. do."
Sean, someday we will be able to leave the blame game behind and focus on the core problems and some solutions. Finger pointing down the road is the broker party line. So if banks and Wall St set a YSP "max...."
does that mean that it's always "okay" for a broker/LO to always charge that max YSP in all transactions because somebody else says it's okay? Would that be okay for your own transaction? Your son or daughter's transaction?
"2. Banks benefit if mortgage brokers are eliminated by taking the business themselves.
Our industry has always been cyclical. We would all expect banks to slowly pull away from brokers when times are like this. When the housing industry comes back, and we know it will, banks will once again open their doors to woo brokers.
Submitted by Jillayne Schlicke on August 3, 2009 - 9:39pm.
@MC "February 27, 2004 Federal Trade Commission (FTC) issues the only government agency that has done a study on HUD's YSP disclosure rule."
You are missing serveral years worth of recent government research by HUD.
Submitted by Stephen Mack on August 4, 2009 - 5:15pm.
Regarding this discussion of YSP disclosure, the issue is one of fairness. Plain and simple. Jillayne, if YSP is so important to disclose, my view is fine, no problem! Then let's ALL be required to disclose it, not just the Mortgage brokers, but Banks and everyone else. Do you see my point?
In other words, my own preference is to leave out the YSP disclosure altogether and just have the borrowers focus on comparing what I can offer vs. let's say a local bank--focus on the bottom line deal. But to those, such as yourself, who firmly believe this YSP disclosure is important? Ok, no problem, I won't complain, SO LONG AS WE ALL DISCLOSE this form of payment for our services together. For me, it is not whether it is disclosed or not that is so important, rather it is that we all play on a level playing field. As a Mortgage broker, that is all I ask. Is that fair?
Submitted by Jillayne Schlicke on August 5, 2009 - 2:42pm.
Stephen, that's the NAMB party line they've been singing for years.
Look, I love working with mortgage brokers, consumer loan company LOs, and LOs from a bank. I have no preference one way or the other.
But we're missing a big problem when we say that everyone should disclose.
A bank doesn't necessarily KNOW what their yield will be at application or at closing. Some banks will hold on to their loans and season them for several months, maybe a year. Now these seasoned loans are much more valuable on the secondary market so the bank decides to sell. Then they earn their yield. They never could have known what that yield would be at application or at the close of escrow.
Banks are different from brokers and consumer loan companies. To say that they should all be treated the same is not understanding their inherent differences.
Banks aren't ever going to have to disclose their yield unless we change RESPA and it took HUD 30 years to make the latest change.
Submitted by www.ConsumerMortgageReports.com on August 6, 2009 - 5:45am.
"A bank doesn't necessarily KNOW what their yield will be at application or at closing.", you have to be kidding. These are not arbitrary events.
I work for a bank and we most definitely know our exit strategy prior to entering into any mortgage agreement.
I agree that banks and brokers should be on the same playing field, period.
Submitted by Kristen Emery on August 10, 2009 - 7:02pm.
I agree with the previous post - that banks should be required to disclose ysp also. I work for a mortgage broker and broker, and I am paid the same whether I broker the loan or not. It only leads to more confusion for the consumer, when the bank does not habe to disclose but the broker does.
I have disclosed my ysp, even when I am originating the loan through my mortgage bank. Does not seem fair.
Kristen Emery, CMPS
Senior Loan Officer
Silicon Valley, CA
Submitted by Derek Eisenberg on August 11, 2009 - 6:39pm.
I have to agree with the writer. If we are going to let consumers know what merchants make in one industry then consumers are entitled to know in all industries. Insurance agents should disclose what they make when they sell a policy. If a doctor pins a bone, sews up the skin and applies a cast, the cost of each should have to be disclosed. The supermarket should have to disclose their wholesale cost for the food they sell you.
The real problem is undisclosed expenses that are only revealed to a consumer at the 11th hour when the consumer needs the loan and can't easily start shopping all over again. It's not how much the lender is making. Where did that basic need for accurate good faith estimates get twisted into a right to know the breakdown of wholesale costs and profit to the merchant (the mortgage broker)?
Derek Eisenberg
http://www.mls2u.com
Submitted by Rizzie mc cartney on September 1, 2009 - 2:55am.
Nice article. Thanks for sharing it with us. Mortgage costs are legion. For starters, one of the biggest mortgage costs is the mortgage itself, which is ample, then you have property taxes (which are ridiculous) homeowner's insurance, and then upkeep. The costs of buying a home are prohibitive, and mortgage rates don't make home ownership the easiest thing to do – part of the ever diminishing ease of access to the American Dream. What they don't tell you is that you'll pay over twice what your home costs in interest – how good a deal do you have now? And since the average family moves every 5 years, you'll technically never own your own home. No wonder mortgage costs send the average person running for payday loans. For more information, you can check out this link: http://personalmoneystore.com/moneyblog/2009/08/29/mortgage-costs-1/