Operation Overwhelm – Friday Jan 28th, 2011 at 10 am (PST)

Post date: Jan 15, 2011 5:37:37 PM

Reminder to put this on your calendar and forward to everyone in the mortgage brokerage industry, title, escrow, appraisers, vendors, etc.

GET ON THE SAME PAGE…PRETTY PLEASE?

At minimum, in everyone’s best interest (including the government’s), we are urging the Fed, Congress and the White House need to get on the same page. As it stands, the Fed is set to implement new LO compensation regulations on 4/1/2011. In late 2011, Congress is likely start enforcing the mortgage piece of Dodd-Frank. Then, it’s possible the new ‘Consumer Finance Protection Agency’ may come out with some new regulations and or new forms, i.e. GFE late in 2011 or 2012.

Are 3 rounds of potentially conflicting regulations productive for anyone, including the consumer? (Technically, 5 rounds, if you count the 2010 GFE which was botched, then HVCC, which later had to be repealed and replaced)

TESTING & IMPACT

Not only do we need to push for the Fed, Congress and the White House to coordinate their efforts, but we also need to remind them that these new regulations, many of which are good and well-intentioned, could actually have some unforeseen consequences, potentially NOT great for the consumer.

Has there been an ‘impact study’ so see what the short-term and long-term impacts will be on the consumer, broker and lender? (Had they done an impact study before implementing HVCC, they could have avoided lots of problems). In 5 years, will there be any competition in our industry, or will everyone be offering roughly the same price? Is that good, healthy? Or does that look like Soviet-era Russia?

COMPLIANCE AND COMPETITION CAN PEACEFULLY CO-EXIST

As an industry, we clearly want the consumer to be protected from predatory lending practices. (Yes, we had some bad actors and we applauded the NMLS regulations which largely eliminated them) But, we also believe the consumer has a responsibility to obtain competitive quotes from banks, brokers, credit unions, etc.

Requiring mortgage brokers to pre-determine compensation with our lenders would be analogous to a football coach trying decide in the first quarter what play you’re going to call in the fourth quarter when it’s 3rd down and 10 and you’re at the 40 yd line with 10 seconds to go. It just doesn’t make a lot of sense. The coach can only call the play at that moment. In our situation, brokers must be nimble and able to choose lenders and programs without having their hands tied by pre-determined compensation agreements, which may in fact cost the borrower more.

ALTERNATE SOLUTIONS – IDENTIFY HIGH RISK LOANS

One of the fundamental issues a few years ago was lenders were paying a significantly higher YSP on what could be described as ‘high risk loans’, i.e. Neg Am. Therefore, in some circumstances, borrowers who would have been better off in a 30 yr fixed loan, were instead placed into a Neg Am that paid a higher YSP to the originator. That was clearly bad.

However, the solution is straightforward. The Fed/Congress can establish a category of ‘high risk’ loans, then prohibit lenders from paying higher YSP on those ‘high risk’ loans. It’s an elegantly simple solution that will protect the consumer, still maintain a healthy sense of competition in our industry, and as an added benefit, will avoid the confusion, cost, and administration for lenders and brokers that is associated with implementation of the proposed changes by the Fed, the subsequent changes in Dodd-Frank later in 2011, and possible further changes by the new ‘Consumer Finance Protection Agency’.

CONTACT LIST (California)

On Friday, Jan 28th, 2011 at 10 am (PST) to express your concerns with LO Compensation. If you are outside of CA, use this link to find your senatorshttp://www.senate.gov/general/contact_information/senators_cfm.cfm?State=IL

Senator Barbara Boxer

http://boxer.senate.gov/en/contact/policycomments.cfm

Senator Diane Feinstein

http://feinstein.senate.gov/public/index.cfm?FuseAction=ContactUs.EmailMe

House Reps: (Depends on your Zip Code. Enter your Zip Code here to find out who)

https://writerep.house.gov/writerep/welcome.shtml

Federal Reserve

Check ‘Comment For Board’ Members

http://www.federalreserve.gov/feedback.cfm or send emailregs.comments@federalreserve.gov

Ron Paul – Congressional Panel Oversight of Fed & Texas Congressman

https://forms.house.gov/paul/webforms/issue_subscribe.html

You may or may not agree with his politics, but he is big on free‐market which is exactly what we need