If you haven’t heard of Fannie Mae’s Quality Initiative that was implemented last month then you may want to read this as it may impact closings. In an effort to eliminate “bad loans” Fannie is requiring, among other things, for a borrower’s credit to be re-reviewed prior to closing. In essence, a loan can be clear to close but if the new credit report pulls a new tradeline or increase in balances of existing credit, the loan has to be re-run through the automated underwriting system to determine if it is still approved. That could kill the deal if ratios are exceeded. Also, if the credit score drops below a certain threshold that can be enough to get the loan denied. Bottom line is stick to the “old school” method. Do not apply for any credit and do not buy the furniture for the new house! Again, it doesn’t matter if the loan is clear to close, it can potentially be a deal killer.
I am a mortgage broker. Did that scare you? hide your wallets, purses and other valuables please. And make sure that you do not look me directly in the eye as I may perform Amazing Kreskin type maneuvers on you that would allow me to steal anything of value, especially your home. But do not worry, I may not be around much longer as Uncle Sam is watching out for you and your best interest as any prudent family member would. He already has a nice little bill packaged up and greased through congress called the Mortgage Reform and Anti-Predatory Lending Act, or HR 1728 for short. It is sitting in the Senate Banking and Finance committee now where it may be modified, ratified, or chicken fried before it meets its fate as a Senate bill or toilet paper. How would it get rid of the broker once and for all? Easy. The essence of the bill is to eliminate how I get paid. Simple. HR 1728 states that I cannot get paid by wholesale banks and mortgage banks when I shop your loan for the best rate and terms for you. So I can offer you better terms and fees than if you walked into your local Bank, doesn’t matter. What I am doing is illegal because a couple of Congressman said so…Barney the Frank for example. Even though I have to disclose to you upfront what I am earning and I have to re-disclose to you your costs and my earnings if anything changes during the loan process and you have to think about it for 3 business days, no matter if you have to close in 2, that’s not good enough. You might still get screwed by me, somehow, surely, definitely, yep. So you take away my compensation and now I am outta here, just like appraisers are doing in droves right now, thanks to the HVCC, Housing Valuation Code of Conduct, which was strong armed, I mean, implemented May 1 by Fannie Mae and Freddie Mac, the two Government Sponsored Entities that purchase the majority of mortgage loans in the US, courtesy of NY attorney General Andrew Cuomo. Seems he saw an opportunity (opportunist) to grandstand and twist some arms because a big bank was pushing an Appraisal Management Company (AMC) to make values. So guess what? Somehow that morphed into the local appraiser being extorted to make values. Well you know how we should punish everyone, right? Yep, make everyone use an Appraisal Management Company. And that poor AMC got what? Oh yeah, they get to assign appraisals based on who will work for ½ of what appraisers used to get paid, because the AMC gets the other half and now it costs more than the local appraiser charges. So they are struggling, bankrupt, or going out of business because their compensation got taken away. Whets left? How about unqualified, out of area appraisers trying to determine a value on a home that they have no clue about. But it probably doesn’t affect you because you surely are not one of the multitudes that have lost 2.8 billion dollars in equity in the last 3 months because of lousy appraisals. That equity probably wasn’t real anyway. Anyway I digress; big broth…Uncle Sam has this bill in the Senate that will take away my compensation so I will probably follow the path of many of my friends who are appraisers. Even though I offer a service that you will never receive at the bank and terms that are never beaten by banks, I cannot get paid to do that. And again, I already told you how much I get paid through several disclosures that you have to sign, but I didn’t give you enough time to digest it. So you have 3 business days to read them, before I can even begin to work for you. Because you are not smart enough to trust me and understand the written items I have placed in front of you and explained. Because Uncle Sam says so. So you are saying, hey, not sure about this bill, maybe it will not pass and all will be forgotten. Maybe, but now the Federal Reserve wants to get involved. See, even though they implemented the rule that says you have to think about the Good Faith Estimate and other disclosures I gave to you and explained when we first met before you make your decision to let me help you with your finances, which may not be good enough. Because again, I am a mortgage broker. Even though I have given you all the information on how I get paid and how much it will cost you and what your rate and terms are (which again, is better than the big bank on the corner or in the grocery store) I will steal your valuables. I may get paid by the wholesale bank to offer you those terms which is better than the bank on the corner and that just isn’t right! Anyone that sells anything, and there are a lot of those in this world, gets a commission, incentive, bonus, etc. etc. to sell that product or service. Or their employer just marks it up over what the manufacture sells it to them for and pays a salary, more on that later. But Uncle Sam wants to make that illegal for me to get that commission. But who knows, maybe it will not stop there. Maybe next it will be all the other sales people in the United States. Whether you sell shoes, stocks, vacuums or widgets, you are not immune. Although you have great service and/or your price is competitive (competition, more on THAT later also) you should not be allowed to earn a commission on that. Oh and by the way, what do you stand to earn on that commission? Huh? How about disclosing that information every time you sell something? Well, you say, I sell something but I only get paid a salary, so there. Okay. You get paid a salary, that comes from somewhere, and I am pretty sure it means a “markup” which means I need a disclosure on how much your employer is marking it up. And if Uncle Sam thinks you are screwing everyone out there than we just may have to put an end to the whole “markup” business. All is not clear, Der Kommisar! So here is the Mortgage Broker, about to meet up with his brothers and sisters who were appraisers until they ventured into cosmetic sales (until their commissions get canned). With compensation being outlawed by the Feds, there is no way to earn a living without charging you fees anytime you do a loan with me. Now I cannot give you a zero points, no cost deal, or some combination of that, because if I do, how will I get paid? How will I pay my rent, salaries, and office expenses, not to mention my personal expenses? All you have to do is go to the corner bank that has the mediocre service and ask the guy or gal that handles your checking account to help you with your home loan. Because they had a sign outside that says they can do your loan with zero points and no costs, saving you thousands over what I can do for you on my best day. Even though the rate is higher it just makes more sense….oh yeah, I forgot to mention that the banks get the same compensation I receive but they do not have to disclose it. It’s worded a little differently. Brokers may receive Yield Spread Premium and bankers get Service Release Premium. YSP and SRP. YSP is disclosed, SRP is not. Fair? You be the judge of that. Barney has made it his life’s mission to eliminate YSP because the big banks that fund his campaigns like their SRP and don’t want to share it anymore. Now the Fed wants a piece, even though their job is to monitor banks, the same ones who earn SRP’s and do not ever have to disclose it, nor do they have to tell you that their Loan Officers get paid commissions, bonuses, incentives for offering you certain rates, terms, etc.. Loan Officers who are mostly taught to cross sell other products as much as they are trained in mortgage loans, which is about as much information as I have in my pinkie toe. After I am forced to leave and enter my next venture, which I will surely research as thoroughly as I did 16 years ago, I hope that the Feds and one of Barney’s co-horts, will not target that industry as unfairly as the one I am in now. A Knee Jerk reaction to toxic loan products that were offered and pushed hard by hedge funds and ……..big banks. And sold mostly by hawkers that got in my business because the big banks would hire anyone and take any loan so they could maintain their lifestyles of the rich and famous. The same hawkers that are now in the “loan modification” business or who are back to selling cars (no offense to the reputable and honest car salesman). So when we disappear and all is left is a few big banks “competing” for your business, offering you the excellent service that I offered and never in collusion with one another (never happen…will it?) in order to dictate the terms you will receive, Uncle Sam will have succeeded with his agenda. God Bless us all. I am a Mortgage Broker.
