I came across another bill that demonizes mortgage brokers in it’s intent so much it is paramount to killing off the entire mortgage broker side of the industry. It’s called the ‘Transparency for Homeowners Act of 2009’ and is the latest attempt by bank lobbying to steal the mortgage market all for themselves not by fair competition, but by legislative decree.
This bill otherwise known as S. 912, states:
SEC. 2. PROHIBITION ON YIELD SPREAD PREMIUMS.
(a) In General- No person shall provide, and no mortgage originator shall receive, directly or indirectly, any compensation that is based on, or varies with, the terms of any home mortgage loan (other than the amount of the loan).
Now let’s discuss “Yield Spread Premium” before we get too far.
A Little YSP History
Prior to 1999 RESPA changes, both bankers and brokers garnered revenue from loans by creating loans with clients at rates higher than the secondary market established rates, so they could get a “premium” once the loan was sold into the secondary market. This “extra revenue” was known as a “yield spread premium” or a payment (premium) for delivering a loan that beat the rate required (yield spread) if you will.
This term Yield Spread Premium” (also called YSP) was an industry wide term used by both banks and brokers sold loans into the secondary market at higher rates(yield spreads) as a “standard operating procedure”. It’s one of the first thing a new loan officers learns. How to quote rates above “par” so as to earn the YSP.
After the RESPA reform in 1999, the bank lobby got to set the terms…literally.
They got Congress to legislate two different meaning for the practice of delivering loans to the secondary market above the rate required to earn the premiums.
They were clever.
They got the revenue from the same practice if done by a mortgage broker to be called Yield Spread Premium…and got it regulated for the first time. However, if this same practice was done by a bank, it was called SRP or Service Release Premium…and SRPs were left unregulated…to this day.
Redefining terms and legally giving the same practice two different names, is pure semantics. Lobbyists are very good with semantics, especially if it can eliminate your competition while still preserving a huge profit center.
Back in 1999 when the big bank lobbyists petitioned for yield spread premium reform, they certainly weren’t pushing to reform themselves!
They were pushing to put mortgage brokers at a competitive disadvantage in the market place. They wanted to force the mortgage brokers to disclose the income they generate from YSP on the initial estimates and at closing in the hopes consumers would, in contrast, see non-disclosing banks as the cheaper alternative.
However, the banks didn’t count on mortgage brokers being as clever at disclosing it by “hiding it in plain sight” from the consumer. Hence, no mass exodus of consumers fleeing brokers in favor of banks as hoped.
But then came the mortgage crisis and the bank lobby found it’s opening to demonize the brokers. I used to wonder what their next strategy to drive brokers out of the market altogether would be.
I wonder no longer…it’s S. 95, the Orwellian named Transparency for Homeowners Act.
Why is it important to you?
Well no one likes being made a fool of by the bankers once again. Laws being made at their behest to kill off their competition and screw the American public is no different.
Besides that we are talking real money here…hundreds of billions over time! Are we really going to let Congress perpetuate the rise of “too big too fail” mortgage banks. Once the small business mortgage broker is gone…that’s all that is left.
Don’t get me wrong, I’m not defending the practice. I’m saying you can’t let one branch of the industry do it and the other branch of the industry be outlawed from doing the same.
Either it’s legal for both or it’s illegal for both.
Don’t let Congress take away your choice to use a bank or a broker for your next mortgage. And certainly, don’t let them pass a biased law based on semantical nuance that kills competition, favors the greediest sector of our economy(big banks), and destroys thousands of small businesses in the process.
At least with a broker, the disclosure changes of 1999 allows a consumer the opportunity to find YSP and negotiate it away.
You have no such protection with a bank…and you never will.
Until next week…