It is for these reasons that I strongly urge the United States Senate and the President of the United States to oppose the current legislation as written. 

While most industry leaders acknowledge that it would benefit both consumers and mortgage professionals to mandate a federal licensing standard for mortgage originators, the current legislation creates an unfair advantage to large “depository institutions” by creating in essence two classes of licensed mortgage originators.  The current legislation calls for mortgage originators that are not employees of “depository institutions” to receive 20 hours of education, pass a written exam, and participate in continuing education, in addition the legislation requires that non depository mortgage originators must demonstrate “financial responsibility,” while employees of depository institutions are exempt from these requirements.  It is my opinion that this provision of the legislation is discriminatory against mortgage brokers, who generally are sole proprietors or small businesses, and creates an unfair advantage for “depository institutions.”  While I agree with the education requirements and background checks for mortgage originators these provisions should extend to all originators regardless of their employer, much the same way the Securities and Exchange Commission requires education and testing to obtain a securities license for their registered sales agents.

Additionally, the legislation establishes minimum standards for all mortgages.  These standards mandate that lenders must verify income and assets of potential borrowers.  While this provision may seem to make common sense, no income verification and no asset verification loans have been utilized for nearly two decades with little to no increase in risk to lenders.  It was only recently that these programs have suffered higher default rates when lenders allowed them to be used by non-self employed borrowers and with little to no downpayments.  The combination of these two factors allowed these types of loans to be obtained by individuals that were never intended to benefit from low or no documentation programs.  By restricting these types of loans to all borrowers by legislation will significantly decrease the amount of potential purchasers in the market place and further drive down home prices and home sales.  It will also prevent homeowners that used these programs to purchase their homes from refinancing, even though the vast majority of these loans are being paid in a timely fashion. Surely, while on the surface this provision of the legislation seems to be sound with over 95% of theses loans being paid in a timely fashion this provision makes little sense.

I also laud the provision by the National Association of Mortgage Brokers that preserves mortgage originator compensation through the Yield Spread Premium.  While the original text was designed to prevent brokers from steering borrowers to higher rate programs to earn a greater yield spread premium, this would have also prevented brokers from being able to offer reduced or no closing cost loans, while direct lenders were free to steer customers to higher rates or offer a limited or no closing cost option.  Currently, the Truth in Lending laws require that brokers disclose any yield spread premium collected by the broker, even though lenders are not required to disclose the profit or yield spread premium they earn when they sell a loan in the secondary market.  It can be argued that in cases where lenders hold the loan this disclosure can not be made since the future price of the loan if sold can not be established at the time of loan settlement.  However, it is not required by lenders even in cases where a loan is sold concurrently or just after the loan settlement.   Perhaps instead of restricting these payments both lenders and brokers should be required to disclose the yield spread they earn (in the case of a broker) or could earn (in the case of a lender) if the loan was sold on the secondary market on the day of disclosure.  This methodology would allow potential borrowers to actually compare charges between various brokers and lenders and still give both the broker and lender the ability to offer loans with reduced or no closing cost loans.

According to the Mortgage Bankers Association currently 35% of all homes are owned outright and don’t have a mortgage, 95% of all outstanding loans are being paid on time, and 85% of all subprime loans are also being paid in a timely fashion also.  While the system is imperfect it is working.  The investors that allowed relaxed lending restrictions to non-suitable borrowers lost their investments and many lenders that allowed these types of loans to be underwritten have now gone out of business, just as a free market economy should function. 

Currently the United States is enjoying the highest home ownership rate in her history, as an industry we worked diligently to make homeownership a reality for so many.  With 95% of all loans performing satisfactorily we hardly have a lending crisis, and for those borrowers that did end up with improper loans the industry is responding to correct these issues.  The FHA, Fannie Mae, and Freddie Mac have all begun to work with lenders to get borrowers with challenges into loans better suited for their situations.  It is my opinion that the current legislation as written would only do two things, prevent potential homeowners from realizing their dreams of owning a home and creating an unfair advantage by discriminating against the small business mortgage professionals.