Thursday, November 1, 2007

Breaking News: Mortgage Brokers now in a panic that they are about to lose their careers!


Poor mortgage brokers, Looks like your days of taking advantage of consumers is soon coming to an end.

For those of you who are unfamiliar, YSP or Yield Spread Premium is is the cash rebate paid to a mortgage broker based on selling an interest rate above the wholesale par rate that the borrower qualifies for.

In other words, Brokers make money off screwing you and locking you into a higher rate than you have earned.

Well Congress is trying to put an end to this practice with a new bill HR3915 "The Mortgage Reform and Anti-Predatory Lending Act of 2007"

Mortgage brokers nationwide are now in a panic knowing that the end of their career is at hand, check out some of these threads on the broker outpost for a great laugh.

The End is Near


Sign the petition to save YSP

Don't worry guys, there are new Wal Marts opening all over America selling cheap Chinese products. I am sure you can get a new job soon.


Muchocho said...

It will be fun to see mortgage brokers go the way of travel agents.

Webpuppy said...

So I guess no one will buy real estate anymore... unless you have 100's of 1000's of dollars in cash. Won't it be fun to all be renters?
There are bad loan officers out there, many of which, by the way, are not mortgage brokers. This industry has been plagued by deceptive jargon, much of it used against borrowers by unethical loan officers, many of whom worked for banks, or bank style organizations that weren't required by law to tell you if you had a par rate or not.
When YSP is being paid by a lender to a mortgage broker, it is designed to be paid so that the borrower can pay less in closing costs (0 point loans). It is also suppose to be disclosed on the Good Faith Estimate, so the borrower knows how much the loan officer is making. YSP is one of the ways to make getting a loan less expensive for the client. If YSP is not allowed, then borrowers pay more to get a loan. And what if the borrowers don't have it? Well, then I guess they don't get the new house until they get that additional $4K, or $6K, or more, in addition to the other closing costs and the down payment. Less houses sell, lower existing housing prices go. Well, no YSP, score one for unsespecting borrowers, sort of, zero for the mortgage brokers. You know it will just be passed on to the borrower in higher costs.
A more far reaching effect of this bill is the elimination of stated income. Currently full documentation is achieved by either supplying a lender with a copy of your W-2 or your tax return. Self employed people usually write off many of their expenses. They may have the same or greater income than a wage earner, but it may look like less on the tax return. Why they allow an employee to use gross income and not the same for self-employed people has never made sense to me, but nonetheless, that is how it is figured. Stated income was created to get around that discrepency. In prime lending it is reserved for those who seem to be able to manage their finances, as is represented by a high credit score. In subprime, it's gone the way of the dinosaur. If it goes away, anyone who makes money other than as someone else's employee, will have to choose whether they want a house or their rightful deductions. This may becomes a much smaller group of people available to buy real estate. Fewer buyers results in yet more shrinkage in the value of your house.
And finally, this bill suggests regulations of subprime mortgages that will probably make them disappear. Nevermind that the number of households who could purchase a house increased 5% in the last decade due to "looser lending standards" according to an article in BusinessWeek, they shouldn't have, right? They made a late payment on a credit card, maybe more than one. Maybe they were going through a divorce, or lost their job or a family member got sick and payments fell behind, for a while. That's a good enough reason why they shouldn't be able to own a house. Perhaps they make enough to pay a mortgage, but saving up for a down payment is pretty impossible. Oh well, no house for them either. And what do you suppose this does to the housing prices? Already in the last 6 months 1% fewer homeowners exist, which equals 500,000 less homes owned.
Were there a lot of liars populating the position of Loan Officer? YES. Good bye to them. They are a scourge, a boil on the industry that should be lanced! But do you really want your options for homeownership drastically reduced or eliminated? A good Mortgage Broker represents all sorts of options for clients, and does their best to explain the good and the bad aspects of each one.
You might have figured out that I am a Loan Officer working for a Mortgage Broker. I decided to stay in the profession because I was one who would speak the truth and fashion the loan that met the client's needs the best. They got what I promised and live safely in their homes today. Some of them were prime borrowers, many were subprime. I do not oppose this bill because I "fear" I won't be able to charge YSP - so what. I've never depended on YSP to make a living, but use it, and disclose it, when the CLIENT NEEDED TO USE IT. What I fear is that people who are in bad loans, for whatever reason, will have no option other than to loose their home, because they no longer qualify for a loan, because stated income or subprime is not available. I fear that people who earn less money will never be able to buy a house because they, too, don't have access to a loan that could be fashioned to help them make that transition from renter to owner. I fully support weeding out abuse. But figure out how you deal with liars and cheats with legislated background clearance and required disclosure - for ALL who originate loans - including bank employees, which right now are being exempted, yet again. And you limit unreasonable adjustments in a loan. Finally, you teach financial literacy to the public. It's not so easy to fool an educated buyer. This bill addresses none of that, just takes your options away. That is why I oppose it!

Chris said...


Thank you for your well thought out and intelligent post.

In regards to your first sentence, If the bill is passed there will be a lot more wholesale lending, like in the old days where you have to deal directly with the bank to get the loan. It is simply cutting out the middle man.

Webpuppy said...

If this bill is passed, wholesale lending will go away, as wholesale lending is the business of offering loan products to mortgage brokers, who in turn offer it to the end consumer. We offer loan products retail, in competition with the banks. Today, as in the old days, you can deal directly with the bank, but not in a wholesale capacity. Consumers evaluate retail products, directly from the banks. Just go to Wells Fargo, Countrywide, Bank of America, WAMU, Citibank etc. They will be happy to talk to you.

Mortgage Brokers (licensed and regulated by the DRE) compete, today, with banks, and are required to tell you not only how much they are charging you to do your loan, but how much the wholesale lender(bank) will pay us, if anything. The bank does not have to follow the same rule. Many of my clients have been told by banks that they cannot get a loan - they neglected to mention that they were speaking strictly about the client qualifying for one of the bank's loan products, not all loan products out there.

Mortgage Brokers came about because there were huge segments of the population who were not being approved for loans, and the only other option a borrower could find was a "hard money lender" who would loan at very high rates of interest, on very low loan-to-value amounts.

I have personally saved clients from direct lenders' predation. One example from last year - I was able to put a client in a loan that was 1.25 pts lower, $25,000 more cash in his pocket, fixed 8 years longer and cost half as much as the one his direct lender offered him. I didn't need to lie to him, he's a very happy customer who is in a much more secure situation today than he would have been dealing directly with the bank.

Oh, you should also know that some of the people who work for banks have prison records. Evidently there is no regulation requiring them to go through background checks. My fingerprints had to be run through the DOJ database before I could qualify for my license. I don't know about you, but I don't want my personal information in the hands of an ex-con.

If mortgage brokers disappear, mortgage money will be harder to get and more expensive. The absence of competition is never good for the consumer.

IRISH said...

Thank you webpuppy. This scares me. To those in favor, I'm sure by your attitudes that we think very much alike. I'm protective of my clients, but maybe your strong enough in character to admit that possibly your stance is not well thought out. It's elitism. It attacks those close to the american dream, making it more difficult for the hard working and the entrepreneur to become homeowners. Plain and simple, it increases the division. The predatory potential of YSP can be nullified very easily by addressing how this income is disclosed on the GFE. Inform the consumer, don't cut them off.

Anonymous said...

I don't understand Democrats. What a bunch of idiots. This bill will hurt the very people they say that they represent: the working poor and minorities. Banks don't write sub-prime loans. The sub-prime loans offered by mortgage brokers have allowed borrowers w/ poor credit and/or little income the chance at home ownership. Hundreds of thousands of people own a piece of the American Dream because of this fact. Not all sub-prime loans go into foreclosure. Many of these loans were simply a vehicle used to help people out of a jam. Also, it's a fact that minorities and the poor in this country have lower credit ratings that people w/ money.

John Crenshaw said...

Wow, I didn't think such blanket stereotyping existed outside of a KKK meeting, I stand corrected.

Listen guys, have a lot of people been screwed over by mortgage brokers? Of course they have, but you guys are missing one vital aspect of this entire equation...the mortgage broker is only offering a product that the bank will approve, and trust me, the shady banks are no better than the shady mortgage brokers. As a mortgage broker, if I submit an application to a bank for one of my clients, the guy/gal receiving that application and the underwriter approving that application know damn well if it's full of shit or not, they just look the other way, and I still see that happening...and I'm talking big name banks here who are thought to be ethical and have high BBB ratings.

The problem wasn't and isn't mortgage brokers, the problem was a lack of any sort of regulation a nation, we put in place a system like the wild west, with no enforced laws, well, we were just asking for scam artists to flock to that sort of business. Do we need to tighten up the laws? Not in my about instead of tightening up laws, we start enforcing laws that already exist? Because that's still not happening.

As far as YSP goes, I'd prefer to have it stick around, both for my sake and the borrower's sake. It's a fact that ysp can benefit borrowers dramatically if used correctly, it's also a fact that it can hurt them if used incorrectly.

And I can't end without pointing out this quote in the original blog post,
"In other words, Brokers make money off screwing you and locking you into a higher rate than you have earned."
That quote right there shows that the author hasn't the slightest clue how ysp works and should do his research before making blanket claims about every single individual in a given line of work being out to screw people over.

I wrote an article a while back about ysp where I go through a simple scenario of how it can dramatically benefit borrowers if used correctly...I lay it out in basic math. If anyone wants it, I'd be happy to send it to you...shoot me an email at john [at] truthfullending [dot]com if you want the article.

Anonymous said...

Hey Chris! Can you get me a job at Walmart with you? It will be so fun working together again.

Anonymous said...

I am a loan officer in chicago. One day we hired a new loan officer on that had worked previously for countrywide. When he came to us he know so much about what we did, i had to ask him how that was possible as he came from a different enviroment. he told me that he sold loans the same way from countrywide only he got a sallery and much much much smaller commissions so it made sense for him to come to us because he could make half of the ysp and points. At his previous job he could only make 25% of 1% or 25 bps. Lets look at that big lender makes 3% on loan of $300,000. L.O. makes $750.00 and employer makes $8250.00. Same loan done by a broker and loan officer, with a 50/50 split L.O makes $4500, Broker makes $4500. Lets take a closer look. get paid to do the same job, make a fraction of the money and who gets rich. We are all selling money at about the same price and without the option to go to a broker you are taking money and feeding the corporations, their officers and a few select people on the very top and taking the jobs and income from hard working americans. Why is it that 10% of the american people control 90% of the wealth. This is why, honst hard working americans bust their asses trying to get a piece of the "American Dream" and get shot down because Corporate America wants to not only have 99% of their own pie, they want as much of yours as they can take. The real Kick in the Balls is that they will hire outside of our country to get it.... Come on already, you cant even feed the comunities which you are pillaging while at the same time blaming the people who helped get you where you are for your problems, while even wores gettig bailed out of trouble you have gotten yourself into by the tax payers who again are the vary peoples lives you are willing to distroy. maybe you will see the light when americans have no more money to invest in your company, your stocks,and the realestate you have in your forclosure departments, waiting to sell. You will remember that if it were possible to get a loan for people other than prime a paper clients, you could unload your portfolio on some new hard working american in search of the American Dream and not just pass it on to a wealthy friend for 25 cents on the Dollar so they can sell it and make a killing. (way more than a Loan Officer or some Mortgage Broker would make by originating a Mortgage) yah.... lets all let banks decide who becomes more wealthy and who becomes more poor..

Anonymous said...

For a decade, I have originated mortgages (a loan officer). I have been a broker and a banker or 'direct lender'. When you get right down to it there is little to no difference. That's right... lenders get YSP too. They just don't have to disclose it. Eliminating YSP, will basically get rid of an industry. The industry of shopping around for loans, by professionals, so the consumer doesn't have to. Brokers exist because they can get at least as good of deals, otherwise market forces would have already eliminated them. This is just bad policy. This eliminates competition and products that afford home ownership to worthy people. If you really want to fix things there are three problems - the very large financial institutions that created products designed for abuse and the hot-potato game that leaves them basically untouched, the regulator that allow any Tom, Dick or Harry to call themselves a loan officer (banker or broker) no matter how little honor or competence they have, or the consumers who create the demand for loans on home that they cannot afford and do not pay back. Understand this. A the top fat-cats create the supply, at the bottom the consumer hunger creates the demand. In the middle are loan officers. Some great, some awful. Some bankers, some brokers.

Anonymous said...

The Problem.....
i came across a client that has a 750000 loan with a payment of 2500 per month. the house is worth 1.2 million. now if the client is 90 days behind on this mortgage and has been making this payment for 2 years, is it the broker who gave him the loan or is it the guy with his head up his ass who should be responsible for the 75000 in additional principal owed for this "loan"? well if this type of loan was not available he would never have lived in such a home for the past 2 years. NEG AM should not be a "feature" it should be a warning not to take this loan. it is another way the investors thought, well if they cant afford to pay for it, we can just take the house or let them re-fi it with a ppp. i blame the people who created the programs for this situation and commission them to be a part of the solution not the problem. make programs for those families that are in your programs and help them recover from the devistation you have caused. brokers tell people what their options are and help them get what they want..... we are a service industry. you walk into a grocer, will they sell you the expensive stuff or highly suggest you buy at aldi, where the same basic product is 40% cheaper. We sell what we have to those who want it. America is about having the freedome to make your own choices good or bad. do you really think that people will make any better financial decisions because some shmuk at a bank is working with them instead of a broker???? a bank sells only what they have in their stock, will the bank send the client to another bank to get a deal that is in the better intrest of the client? no Is it in the clients best interest to walk into 20 banks and compare programs, run 20 credit reports and make a decision after its too late to help. Brokers are the only thing standing between the american people, the banks and lenders becoming even bigger crooks. i wonder who would have enough money to make sure they are the last ones standing. they do afterall control all of our Money.... Lets not make this a debate, get rid of all neg am loans dont allow PPP's and regulate the programs that come out from the lenders get rid of all arms for all it matters. a fexed mortgage at an affordable rate is all that will help. brokers provide more than jsut a service to lenders, banks, and consumers, we also provide a line of defence from the distructon of the american way. every broker must disclose how much money we make on every loan. our clients are well aware of that. they do pay as do the banks. go into a car dealership and buy a porche and demand to know how much profit they will make. if you get the truth, tell them you want it at no profit. see what you drive away in. everyone has the right to make as much money as they are able. go to a movie and see if they will sell you the ultra heart attack popcorn for the 25 cents less, ( the price of the childrens sampler size) which is a 1000%+ proffit even at that price. don't let it happen. with no competition, rates, programs and options will be a thing of the past. you will walk into a bank they will say here is your option and you will sign because you have NO OTHER OPTION.

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