Broker's Blog

Howdy, folks! After much prodding by my web marketing consultant, employees, family and friends (all of which are most likely tired of my rants) I am starting a Blog…welcome to the first edition.

Since this is the first post, I’ll introduce myself. My name is Marshall Moody and I’m a manager and licensed mortgage broker (68973) for Stone Oak Mortgage (www.stoneoakmortgage.com) in San Antonio, TX. I also maintain memberships with National Association of Mortgage Brokers, Texas Association of Mortgage Brokers, Greater San Antonio Builder’s Association, Stone Oak Business Association, and the National Association of Home Builders. I’ve been in the industry in various capacities for over a decade. My biggest satisfaction is helping fellow citizens realize and maximize the American Dream of homeownership, but some recent events almost make it seem like the American Nightmare! Use a reputable broker to stay out of that second classification…but I digress.

Unless you don’t have any connection with recent news, you know that the mortgage industry is in shambles…which has spilled over into the real estate industry in a big way…and is spilling (or will be spilling) into the broader economy. Many analysts have said that this is the worst nationwide real estate market that we’ve seen since the great depression…in my opinion that’s pushing it, but not far off in some areas of the country (thank God I live in Texas!)

Congress and consumer advocate groups have responded by initiating, supporting, and passing legislation which they believe will protect consumers from loans which they do not need to be in, and will help keep brokers / lenders “in check”. I would guess that most folks (including me) find this admirable and worthy of pursuing…the mortgage industry obviously needs to change.

The first major piece of legislation was the FHA reform act which most citizens and many in congress support…it will greatly increase the ability of both banks and brokers to help out those who need to refinance out of ARMs and also keeps the lower priced purchase market liquid. Although met with significant support, it has stagnated in the Senate…presumably stuck in committee due to political concerns. It’s a shame and this bill should be passed as quickly as prudently possible.

This leads me to HR 3915 which recently passed the House of Representatives, and is on its way to the Senate. This Bill has some excellent provisions for protecting consumers, but in a few ways could actually lead to more harm than good.

First, the good stuff!

1) This bill provides for Nationalized Licensing requirements for all loan originators that are not employees of federally chartered banks (like Bank of America, WAMU, and the like). It appears that federally chartered bank’s originators will only need to be registered. Although it still has a loophole for federally chartered institutions, this is still being debated and is, at least, a big step forward in keeping the criminal element minimized in our industry. The obvious increase in accountability should be welcomed by consumers and mortgage professionals, alike, since any licensed originator will have to pass a 100 question test, a criminal background check, net worth or bonding requirements, and continuing education (along with occasional audits by state officials). Most would need to renew their license on an annual or bi-annual basis…all but originators at banks. Mortgage banking offices can still be a haven for those who fail to meet one or more of the requirements for licensing. It is well known in the industry, that if you can’t get licensed, go work at a bank…that must change.

2) This bill also re-emphasizes the need for early and frequent disclosure of fees to the borrower (brokers disclose the yield they make upon sale of the loan, while banks are exempt from disclosing this information, even an approximation). This is already required by RESPA and practiced by the majority of originators, but the strengthening and re-emphasis is appropriate considering the current state of affairs and consumer claims of ignorance and deception. If this bill is truly for the benefit of consumers, it is curious that the bank’s exemption from having to disclose their compensation and from licensing requirements still exists.

Now, the misguided stuff!

1) …as I just briefly mentioned above, the continuation of allowing the banks to hide their return on sale (Service Release Premium or SRP) while forcing brokers to disclose their return on sale (Yield Spread Premium or YSP) is still a disservice to consumers and grossly unfair. Beyond enforcing a less than level playing field, hurting competition and having transparency only on the broker side of the business, this allows high premium pricing programs to persist in the banking world. Some would say that the bankers are “safer” than the brokers, but please remember that it was mortgage banks and warehouse lenders which determined the underwriting guidelines for all the alt-a and sub-prime mortgages which are now causing these problems. Brokers do not set guidelines or package securities, they connect a borrower with a program which they qualify for based on the guidelines provided by the lenders or banks.

2) This relates to the info above in that the bill lowers the HOEPA triggers (thresholds which determine what a “high cost mortgage” is). HOEPA calculations for brokers include any YSP earned, but since banks are not required to disclose their SRP, it is NOT included in the calculation. The new standards would prevent brokers from being able to finance lower priced affordable housing…especially in high title cost states like TX. Do we really want the banks to have a monopoly on this business? Remember Countrywide is a bank and is not the only one who lended questionably. Brokers have traditionally done approx 60% of this business…many of these borrowers find banks intimidating.

3) This bill intends to legislate underwriting guidelines…WOW! That should be a scary thought for consumers! We wouldn’t want the government to tell us who can obtain life insurance and who can’t, which homes can be insured and which can’t, who can buy a car and who can’t, who can get medical insurance and who can’t…you get the point…so why would it be good for the mortgage industry? The bill requires that all borrowers demonstrate a documentable ability to repay the loan and it also all but outlaws non-prime lending. The reality of the matter is that the non-prime loans that started this problem are all but extinct since they are worthless on the secondary market. IF they ever return, it will be in a much more conservative, lower-risk-oriented version like the non-prime loan programs which have been around for many decades…which performed well (higher down-payment , reserve, credit requirements than existed in the previous few years). The language on “ability to repay” is currently being interpreted as the elimination of all stated income and low income documentation loans. Here again, the market and guidelines have already corrected. The only stated deals still readily available are for borrowers with sterling credit, lower loan-to-value ratios, are self-employed and have strong liquid asset reserves…these are tried and true guidelines from the past. To legislate these programs away will take another 20-40% of otherwise qualified buyers/borrowers out of the already struggling real estate market…further damaging what some are calling the worst real estate crisis since the great depression.

4) This bill also creates stiffer legal ramifications and exposure to civil litigation for firms which securitize mortgages. Although some level of accountability should be enforced, the current wording would lead to a rash of lawsuits and a whole new “how do you get out of your mortgage with no credit damage and maybe even some extra cash from the lender” industry which, one would think, raise mortgage rates to offset the legal losses they would surely incur. ….Right Motive…Wrong Methodology! I t could create a new term for lawyers, no longer the “ambulance chasers” they would be the “do you have a mortgage chasers”. Just what our country needs – more lawsuits.

If our government can pass prudent, constructive legislation at this very ripe opportunity, it shouldn’t be too long before the American Dream is a pleasant reality for more folks in more places while keeping the mortgage market solid and solvent.

Wow! More of a long rant than a blog post…I’ll work on that…apparently I had a lot on my chest…

I hope you found this informative. Please contact marshall@stoneoakmortgage.com with any questions, comments, concerns or suggestions!