Daily News and Information for the Mortgage Loan Originator
Mortgage Brokers May Be Doomed – If Pending Legislation Passes
Wednesday, October 24, 2007
- By Staff Writer, Originator Times
WASHINGTON, D.C. – This week, Reps. Brad Miller (D-NC), Mel Watt (D-NC), and Barney Frank (D-MA) introduced The Mortgage Reform and Anti-Predatory Lending Act of 2007, which according to their joint statement is intended to provide “comprehensive legislation to combat abuses in the mortgage lending market.” However, in addition to establishing a “nationwide registration regime”, the proposed legislation will also prohibit Yield Spread Premiums (YSP) to be paid to brokers, wipe away qualifying benefits for adjustable rate and interest only borrowers, and will essentially make “No Doc” and “Low Doc” loans illegal.
According to a copy of the legislation obtained by the Originator Times, the proposed legislation would require that all mortgage originators operating in any State “which are not depository institutions or institution-affiliated parties of a depository institution must meet effective minimum requirements and at all times maintain a minimum net worth of $100,000 or pledge a surety bond in the minimum amount of $100,000.”
In addition, the legislation would require “all mortgage originators operating in the State which are not depository institutions or institution-affiliated parties of a depository institution are required to receive minimum training and undergo a background check before receiving a license, and receive ongoing training or continuing education as a condition for maintaining and renewing the license.”
The legislation also eliminates YSPs and overages paid to originators for closing loans at premium rates. The legislation states, “no mortgage originator may receive from any person, and no person may pay to any mortgage originator, directly or indirectly, any incentive compensation (including yield spread premium) that is based on, or varies with, the terms of any residential mortgage loan.”
With regard to the elimination of the YSP, National Association of Mortgage Brokers (NAMB) President George Hanzimanolis voiced serious concern about the legislators’ decision to eliminate the originator’s ability to receive direct and indirect compensation. “The indirect compensation mortgage brokers receive from lenders is a defendable fee that actually lowers closing costs to consumers. It is an imperative tool for first time homebuyers, and critical to enable so many people to own a home and manage their finances.” The NAMB President said he hoped to work closely with legislators and consumer groups so that all parties understand the important role YSP plays in securing a home loan.
The legislation also creates “minimum standards” for residential loans which includes a provision that “no creditor may make a residential mortgage loan unless the creditor makes a reasonable and good faith determination based on verified and documented information.” This provision appears to target “Low” and “No Doc” loans which would likely prohibit their origination.
Additionally, the legislation wipes away any qualifying benefits offered to consumers seeking adjustable or non-amortizing interest only loans by requiring creditors to qualify applicants at the fully indexed rate or a fully amortizing rate in the case of interest only loans.
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