WASHINGTON, DC – (LoanSafe.org) – Today, an amendment put forth by Oregon Senator Jeff Merkley and Minnesota Senator Amy Klobuchar to the Wall Street reform bill passed the Senate by a vote of 63-36. The amendment will protect homeowners by prohibiting mortgage lenders and loan originators from receiving hidden payments when they steer homeowners into high-cost loans and will create strong underwriting standards to ensure borrowers have the ability to repay their loans.
“Deceptive mortgage practices like hidden steering payments directly led to the Wall Street meltdown and resulted in millions of families losing their homes,” said Merkley. “We took a huge stride forward today in the fight to restore fairness for homeowners and strengthen the financial foundations of our families. I look forward to seeing this amendment become law so that never again will hidden steering payments put millions of homeowners on the fast track to foreclosure.”
“Complex and deceitful lending practices were at the heart of the financial crisis,” said Klobuchar. “As we work to reform Wall Street, we must establish safeguards to protect consumers from predatory loan practices. Helping everyday Americans obtain sound loans while avoiding unnecessary risk is essential to restoring our economy.”
Senators Merkley and Klobuchar’s amendment will ban mortgage lenders and loan originators from accepting payments based on the interest rate or other terms of the loans. In addition, it will require lenders to document income and other underwriting standards to ensure that borrowers’ can repay their loans. This will end the damaging and deceptive practice of “no doc” and “liar loans.”
The amendment was also co-sponsored by Senators Chuck Schumer (D-NY), Olympia Snowe (R-ME), Scott Brown (R-MA), Mark Begich (D-AK), Barbara Boxer (D-CA), Chris Dodd (D-CT), Carl Levin (D-MI), Al Franken (D-MN) and John Kerry (D-MA).
Source: Oregon Senate
About Evan Bedard
{ 9 comments… read them below or add one }
This Amendment is just a clear sign that Washington has absolutely no idea about the industries they regulate. To claim YSP is a steering payment is incompetent. THis is as bad as The Fed claiming that YSP is not the same in any fashion as SRP. In NJ I can turn a profit on most loans at 102. The Big 4 need 106 just to break even.
It looks like the MBA lobbyiest got to the Dem party.
My husband as a CPA was approached many a time during the housing boom to help homeowners who tax returns or financial statements needed to be done to complete the loan. One mortgage broker in particular was placing a buyer combined income with his spouse was 70,000 gross into a home. The mortgage broker was putting them into a 800K house with a 100K equity line at closing. My husband contacted the broker and told him, “These people cannot afford the house.” Reponse from broker, “I don’t care. I am making 20K on this loan. It’s their problem once they buy it.” My husband gave the broker back the paperwork and said find someone else, I want to be able to sleep at night. They need to limit the brokers, because for 90 percent of them, its is all about the FEES, points and back door payments offered by the banks,not the customer.
Karen, Why would these people agree to this? Where is the consumers responsibility, they had to know they couldn’t afford such a payment? If the broker truely (doubtful) made $20000.00 on the transaction that would be 2.5% of the loan amount and what they are proposing is to cap @ 3.00%. Do you know the cost of doing a mortgage? If not, how do you know that amount is excessive? Where is the outrage for realtors making 6%=$48,000.00 on the same transaction? Where is the outrage for CPA’s charging mortgage bankers and brokers $5000.00-$20,000 for audited financial transactions? By the way, WHOLESALE lending was intended to be marked up as the bank is not paying that loan originators salary, 401,health insurance,etc Chase can’t have a retail office on every corner USA. Sleep tight.
Personaly, I think this is a terrible idea. I dont for a second doubt that some changes are needed, and even those of us in the industry felt there needed to be changes. Limitation on compensation in this form however is a terrible idea. To those who have no idea, consider this. In my small office, the average cost per loan, between expenses, overhead, processing costs, verifications, storage, quality control, IRS transcript validation, fraud control, post closing audits, and dozens of other loan related expenses are an average of 1600-1800 per loan. We already barely break even if doing a home loan for a first time home buyer purchasing a home for under say $60k. Now take these new proposed rules, and do some basic quick math, about the best we come out with is maybe around $500 bucks on a loan amount of 50k. I dont know about you, but there is no reason to procure a loan, and have my company pay the costs for doing so when the maximum compensation to the company is only around $500 bucks. I mean really, who is going to do a loan that costs $1100-$1300 to procure? Say good bye to small loan amounts, say good by to first time buyers who predominately purchase the smaller less expensive homes. Nobody is going to do a loan that costs them money to close, and no business can survive when the cost of the goods or services exceeds the amount the business can charge. Once again, another example of misguided politics, and knee jerk reactions without having the slightest clue, or even remotely thinking about the end relult. This one is simple, end result is it will hurt the consumer far more than help them. You think credit is tight now? How bad do you think it will be when banks, brokers and alike will no longer do low loan amounts because the costs exceed the revenues? I dont know about you, but this is not the change any of us are looking for or needed.
Just shows Congress doesn’t understand anything. They allow the Banks to make all the Service Release Premium they want but limit the amount of Yield Spread to the mortgage companies. IT’S THE SAME THING! The Broker channel is usually the cheapest conduit for interest rates for the consumer and now they are trying to shut it down. The ones to suffer the most will be the low income people looking to buy a home because now they can’t go to a Broker they’ll have to go to a Bank where it’ll be legal for them to rip them off. With no competition in that arena rates just got higher.
“No-Doc or Liar Loans” are already a thing of the past.
The quasi-governmental agencies Fannie Mae and Freddie Mac, now have stringent underwriting guidelines in place. HUD with the FHA program also already has strict requirements. Again, the no doc loans of the early to mid 2000′s NO LONGER EXIST!
It’s painfully obvious that these Senators are mis-informed and are not doing their due dilegence. This bill is about 3.5 years too late. It’s not needed now. The subprime market no longer exists!
To Senators Merkley-Klobuchar, I suggest you employ competent aides to assist you; and you need an update on what’s going on in Main Street America now, not what was happening three years ago. Enfore the laws already on the books! Oh but wait, then your names will not be attached to a bill……..Ego driven perhaps?
This will ultimately hurt the consumer by restricting competition; and increase the amount of out of pocket money needed from the consumer to pay for closing costs.
I’m not worried, as there are many competent people that do understand how the mortgage process works, and that consumer protection is already built in to the existing laws. This amendment will be overturned.
The Merkley/Klobuchar amendment reflects a complete lack of understanding about the current mortgage market place. Does any one understand that YSP’s are what allow us to make no-point, and no-cost loans for borrowers? The banks have exactly the same type of income for ‘above par rate loans’, called SRP’s (service release premiums), which somehow are overlooked by consumer groups and Congress. By eliminating the YSP’s in a mortgage broker transaction you’ve effectively put us all out of business–in favor of, guess who, the Big 4 Banks–B of A, Wells Fargo, CITI, and Chase. We won’t be able to offer, say, a 4.625% loan with 1/2 point,because the other 1/2 point that we’d receive (for a total one point loan), which now comes indirectly through the YSP from the lender, would be illegal for us. But the banks–who’ve already received preferential treatment with their huge, tax-payer funded bailouts will still be able to make 1/2 point, or 1/4 point or no-point loans. That’s right, let the banks who essentially fueled the meltdown get a complete monopoly on the mortgage marketplace.
Also, and very importantly, the new Good Faith Estimate of closing costs, that we issue to all qualified mortgage applicants, clearly shows the lender/broker fees for a loan, and these cannot change at all. In fact, this more than an estimate–it’s a UNILATERAL CONTRACT that we make to the borrower. And, the lender paid rebate (YSP), is now a BORROWER CREDIT, NOT PAID TO THE BROKER.
Somehow Congress and most consumer groups don’t know this very important development in mortgage transparency, which protects the consumer to a degree that I have not seen in any other business.
Give the new Good Faith Estimate a chance. And don’t give the mortgage business completely to the Big Banks. The Big Banks want all of the mortgage business for themselves, and the consumer will pay rates that are too high–because we won’t be around to compete with them.
The programs that this is enacted to eliminate no longer exist. This is a power grab by the big banks while there are fewer independent brokers to challenge them. I wouldn’t be surprised if Citi, BofA, Chase and Wells Fargo WROTE this bill. BofA already decided to pay its employees peanuts…they know they can right now because their employees are just happy to have a job. By the way, these 4 banks PUSHED these toxic programs on independent brokers.
For those that are in favor of this amendment understand that also included in the the 3% max compensation is 1% of any up front FHA mortgage insurance (that goes directly to FHA, but it is considered in the loan officer compensation? that makes no sense but that is the way it reads). So really they are limiting a loan officer to 2% (actually less than that because title charges will come out of this % as well which DO NOT go to the loan officer). So quite simply it will not be profitable to originate a loan. The big banks like this because 1) they
won’t have any competition and 2) they can pay their own employees less because the way this bill reads is “loan originator”. There is no distinguishing between broker/banker.
Please understand that by limiting compensation in this manner what is going to stop this government from getting a hold of YOUR industry and deciding what YOU should make? I am fine with a 3% compensation max to loan originators, most investors do it already, but the way this bill reads it isn’t really 3% is it? It is much less than that. Think of all the wholesale lenders, loan officers, underwriters, etc. that will be out of a job. Nice economic recovery.
Lance has it right. We are headed back to a time when banks charged everyone two or more points to get a mortgage. There was testimony before the Senate Banking Committee in the mid 1990s where experts pointed out that loans without points or closing costs were unheard of until mortgage brokers became the primary origination channel. If this amendment stands, it may very well kill off the best advocates borrowers ever had. You will have to go hat-in-hand to the bank and hope and pray they don’t rape you like they raped the American population with payment option ARMs. Brokers didn’t design those programs, banks like Washington Mutual and Wachovia and World Savings did.
It is absolute nonsense that broker steered people into subprime loans to make more money. Anyone who knows anything about mortgage lending knows that a broker always has been paid more to originate a Fannie Mae or FHA loan than a subprime loan. That is a lie from the big banks and Wall Street who are trying (successfully) to divert attention from their con games that they sold borrowers to make brokers the scape goats. Borrowers came to brokers asking for no-income loans and loans that had a very low initial payments because of bank advertising. If a broker wanted to keep the client, they had to sell what the bank had sold to the public as a good thing.
If the Merkley-Klobuchar amendment stands, you can bet your origination costs will skyrocket… into the pockets of the “too big to fail” banks.