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EDITOR’S NOTE: Amazing how our culture has been one of “entitlement.” No I’m not talking about social security, medicare or medicare, or fire departments, police departments or teachers. I’m talking about the fees that mortgage brokers have been paid to steer borrowers into loans that were guaranteed to fail or at the very least, had worse terms than the broker knew the borrower could get. The Wall Street mentality of get what you can has permeated the entire marketplace.

Broker Fee Rules Take Effect


THERE have been changes in federal rules covering how mortgage brokers are paid, and while legal challenges to them persist, the question now is how the new system will work in practice.

Regulators and consumer advocates say borrowers are bound to benefit. Broker trade groups say their industry will shrivel and consumer costs will go up.

Mortgage brokers are middlemen who work with multiple lenders to arrange home loans for customers. They say they add value by helping borrowers find the best deal; their detractors say they add costs that have been hidden in complex fees.

The business has contracted significantly in the last five years. In 2005, during the real estate boom, brokers accounted for 31 percent of mortgages originated, according to Inside Mortgage Finance, a trade publication. Last year it was just 11 percent, and the market was only half as big.

Brokers used to be compensated by a mix of borrower-paid origination fees and lender-paid fees. The most controversial was a “yield spread premium,” paid by lenders when a broker placed a borrower in a loan that charged higher interest than other loans. The justification was that higher rates allowed lower upfront closing costs. The criticism was that the premiums were an incentive to push expensive loans and that the system contributed to a flood of risky loans and thus to the financial crisis.

In response, the Federal Reserve put out rules that prohibit loan originators from being paid by both the borrower and lender on the same deal, and also barring commissions based on anything other than loan size. The rules were set to take effect April 1; two trade groups sued, delaying enactment a few days before a federal appeals court allowed it. Both the National Association of Mortgage Brokers and the National Association of Independent Housing Professionals say they will keep pressing their lawsuits.

On the front line, the problem is that there has been “no clear guidance” on exactly how to arrange commission structures for employees who originate loans, said Melissa Cohn, the president of the Manhattan Mortgage Company, a loan brokerage firm.

“To be honest with you,” she said, “in some cases it’s going to create higher-priced mortgages.” Although the spirit of the law is to protect borrowers, she added, “the reality of it is it’s just going to cause more confusion.”

Mike Anderson, the director of the National Association of Mortgage Brokers, speaking just two days after the rules went into effect, said: “It’s already happening. Rates have already gone up; fees have gone up.” Mr. Anderson, who is also a broker in New Orleans, cited situations in which brokers could no longer cut fees to make deals go through, and others in which banks were raising charges. “The rules basically pick the winners and losers,” he said, with the winners being the big banks. “The losers are the small businesses.”

The Facebook page of the National Association of Independent Housing Professionals is full of complaints from what appear to be mortgage brokers saying the rules will hurt their business, and recounting how unnamed lenders have raised prices.

Despite industry opposition, the change is a victory for borrowers, according to representatives of the Center for Responsible Lending, an advocacy group long critical of the yield-spread premium system. Borrowers “should be getting more honest services from the originator they’re working with,” said Kathleen E. Keest, a senior policy counsel, “because that originator is no longer going to have a conflict of interest if they put a borrower in a loan with a higher interest rate or riskier terms.”

“If people were saying that the way things worked, worked well,” she added, “that’s one thing, but it’s very clear the way things worked before didn’t work for anybody. The notion we need to have the same rules is denying what happened. It’s denying that the way the market was working was disastrous for everybody.”

11 Responses

  1. This law is awesome. I typically charge .8% on all my deals and give the borrower a deal they can’t get anywhere else now I am forced to charge 2 PTsmon every deal. I am still beating big banks rates but getting paid more than twice as much also every other broker is doing the same thing so I am still giving a great deal to the borrower. This new rule has only helped my business.

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  3. steve –

    You are 100% correct – I already addressed this very issue of the GFE and the TIL and how the brokers may have to be controlled when our oversight did nothing – before or after the loan was originated and you brought it to their attention –

    That is why the lender, the loan processor, the title company and anyone else will never know whether their loan was submitted to the “special audit” by the people – Both parties have to get it right or it is going to be caught and not by the government’s people, title companies are anyone tied to mortgage industry –

  4. Question – If a drug manufacturer sold faulty medication in grocery stores, after they knew it killed people, would you sue the grocery checkout clerk or sue the drug manufacturer?

    Re: Question- When the Samonella was found in eggs they retraced the egg cartons right back to the source in a matter of weeks. You don’t find it odd that this crisis is going on four years.

    There is no shame on the borrower if the taxes and bank statements were handed to the broker. The broker is licensed for a reason. Just like when you take your car in for repair. It is not your job to inspect if your being cheated on parts. It is only your job to make sure the mechanic has a ASE license. If he screws you the Bureau of Automotive will be right there. The same would go for your Physician. You would take the prescription immediately when ill. Not go home and start reading medical journals to see prescription matches your illness. I don’t mind being called a stupid borrower. Mortgage brokering is not my profession. The T-I-L and the HUD support that the broker said I qualified to borrow. Going stated was what the broker suggested reasons being that I was self-employed. It meant nothing to me. Again he held on to my taxes for days getting me qualified. Nothing in loan stated that I was taking out a stated income loan. Does it become my error that the loan originator failed to verify the taxes?

    There is no agency going back to the origination cross checking dates or looking at the brokers filings unless falsifying was in the masses. We still have no Bureau or agency verifying mortgages and please don’t say the DRE. All they did was find ways to blame me excusing themselves from looking into it. After several arguing letters and calls they looked. They wrote back saying we found nothing. I wrote back asking a list of reasons towards what they found. They wont respond.
    The escrow agent who acted as the closing agent. All I asked for was signed copies of what I signed at closing. They can not find them and now they wont answer. Isn’t this the company that I paid to over see and protect?

    As far as missing the point, if Jerry Brown in Calif. is looking for cut backs then he should just abolish the brokers, DRE and Title Co. Three years of this for me and I’m burned out on calls and letters playing paper chase, to the broker, to the servicer, to the bankrupt missing loan originator, to the Title Co. Calling every state and fed agency only to see them passing the buck.

    I suffered through fake mortgage rescue and fake lawyers groups tracing their names back to being previously employed by lending institutions. I may have been trusting and stupid in 2006 but after following this crisis I’m stupid to the facts anymore.

  5. Homer:

    I can understand where you are coming from except that it simply does not hunt. Yes, mortgage brokers were criticized heavily and justly so. But I for one have always felt that most loan officers did not even realize their broker bosses were doing some of the things they were doing to homeowners with their last minute adjustments and changes to their loan terms so they could make higher premiums, etc. And of course there were the masters who knew how to actually sell just about anything.

    Now, at one time many years ago Modzila (countrywide) wrote a memo I think back in 1998 and gave all mortgage brokers the idea that Fannie and Freddie might eventually receive all loan applications direct for originating and processing loans and brokers might be phased out of the equation and yes, brokers were indeed upset at the news. Of course Fannie and Freddie got that corrected real fast I presume, because Modzilla ended up making a statement to correct the information stating that was not the intention at all that brokers would basically be needed for ever.

    It appeared to me at the time that it was probably Fannie and Freddie’s idea to even cut off both the mortgage bankers and the brokers so they could win the whole enchilada. So you see, deep down even the banks probably had a concern that they too were going to lose at one point and did not know it, or did they?. Mozilla was on to something but ended up issuing a restatement of what he was saying. And it was soon forgotten and the whole industry flourished at the expense of the homeowner and taxpayer from then on until 2008

    Now in my mind, before this latest fiasco with the banks and Wall Street, I just assumed that it would be Fannie and Freddie that would go down and that the top seven banks would end up in the running the secondary market, plus producing loans for the secondary market, servicing the loans, foreclosing the properties – you know, the whole ball of wax. After all, their servicing entities have control of almost 75% of all loans, so what would have been wrong with the banks simply taking over the originating and then selling off in the secondary and to wall street – Umm. And what better way for the banks to control loan administration than to own the loan servicing company – those servicers are being sold right and left. – Goldman bought Litton and Ocwen bought Homeq, and Chase acquired Bear Stearns who already owned EMC, BUT even that has changed a bit as I am not sure how they are holding on. Who is doing what to whom? Ironic isn’t it.

    No, the banks aren’t benefiting from the broker’s demise now because the whole world knows the banks control the warehousing of the loans being funded and it was their money that actually funded these loans, one way or another and they would like to keep mortgage brokers in their pocket at least for the time being until they can shore up whatever is left of a bank’s status. By using brokers, they can ward off cost of employment, etc and still get the loan.

    They probably love the idea that the broker is going to be limited in their ysp because that dictates future control of what they can pay that broker thereby maximizing their own profits.

    Now I may be all wrong about this scenario as that is all that it is. But, looks like the banks may be the last man standing – who knows? And can you think of a cheaper way to remove Fannie and Freddie and what a smooth transition it would make – most of Wall Street and the banks have done a beautiful job with their securitizing. Oh my!! They simply would hold the loan after funding it and sell it off in the very same manner that Fannie and FReddie have done. In fact, all of those dudes over at F & F could be blended into the workforce of the banks with a good number of course being terminated. You never know.

    I am always interested in hearing about why perhaps none of this could have worked out – it is a complex situation and after all, one can just never know what the real agenda was and who actually had an agenda –

  6. I think people are missing the point as to why brokers are upset that the new loan originator compensation plan exists. It’s not that they fear for reduced income or increased scrutiny. After all, mortgage brokers were the only ones that received any scrutiny at all during the past decade – they at least had the various states to answer to. Mortgage brokers fear that they just became less competitive than the big banks that got the Fed to push this rule through for them in their favor. Google service release premium (SRP) and yield spread premium (YSP). Both originate from the same source-higher yielding loan equals more premium (rebate) available to the originator. Unfortunately the cartel (Fed) and they mouthpiece (MBA) have been able to somehow get politicians to see a difference between the two in the past. This has meant that the banks were able to not disclose to the borrower the existence of SRP while the broker had to disclose YSP. It’s the same thing. The new loan originator comp plan now gives the bank the upper hand and squeezes the small party out of the playing field.

    What might look like justice on the surface is actually the exact opposite.

    Unfortunately most people are so fired up that any slamming on the financial sector is welcomed. You have to give it to the banks – they are deflecting blame to mortgage brokers and giving themselves a huge advantage in the marketplace. One step closer to ruling the world.

    Don’t believe me? Look at mortgage spreads in 6 months. I will guarantee that they will be much higher than they are today. Where do you think that money will be going? Hint-the bank’s pocket. Meanwhile the population is still cheering about breaking the local mortgage broker’s (little league coach/Boy Scout leader/4-H leader) back.

    Question – If a drug manufacturer sold faulty medication in grocery stores, after they knew it killed people, would you sue the grocery checkout clerk or sue the drug manufacturer?

  7. The whole damn thing is a rip off if you ask me. Why does it have to cost more to borrow money that one is paying interest on to begin with. You’d think that the broker would get his pay from the interest charged. Maybe over a years time he gets his 5k on a 300k loan or whatever the broker and lender work out. Why on earth does the borrow of the home loan have to pay the damn broker and for that matter some honey real estate woman.
    And if loan is w/o broker and direct to a lender, what’s this loan origination fee. Bleep You, Bleepholes. (god it pisses me off) They can all get their fees or pay whatever you want to call it from the interest. Lenders just give them a cut out of their interest received. All these extra fees – admin fee, processing fee. blowjob fee, you name it – it’s all BS if you ask me.

    It’s just whatever you can get away with and us suckers went along. I’m tired of being took by these sharks. The whole industry sucks big time. And now the courts suck big time. And CONGRESS still SUCKS.

    during the boom I looked into becoming an appraiser guy. They wanted me to work for 9 months w/o pay while learning and getting my license. Who can do that. Jesus christ, another rip-off. Intern they call it, yah, well intern this bleep bleep bleep.

  8. The loan applicant may sign the application in blank, but if he does, shame on him. Next, he is given a good faith estimate and t-i-l and that is the word. Every applicant can follow his loan and stop the lender and mortgage broker in their tracks – if the final closing numbers do not match up or be relatively close with what you were given on the GFE. New rules out there about this were issued last year.

    People should be able to purchase a home in America, not to mention the millions of jobs that would be lost if they did not. So, the system has to be legal and it has to work in the best interest of both parties – the lender and the home applicant.



    First – Seems like the loan applicant should have his own disclosure to the lender – that if the numbers do not match up to my last acknnowledgement of your GFE, whether broker issueD or lender issued, this is to serve as your notice that a suit for damages will be filed against you. – i know it needs some work, but why not?

    Two – Also, the disclosure will provide notice that your loan is subject to random auditing by an agency well qualified in the business of underwriting loans and that, upon completion of the origination of the loan, closing and funding and new loan setup – my loan is eligible for verification of all documentation related there to –

    It can work both ways people – so it looks like everyone – the borrower and the lender had best be on the right legal path.

    Third disclosure from the borrower – this loan will be subject to an audit of the payment history and escrow analysis on a random basis so that verification of proper loan servicing technique is being utilized under the lega documents associated therewith.

    One page covering all three disclosures presented by a loan applicant who wants to protect himself from the possible wrong doing of brokers and lenders.

  9. The loan application is dated and signed first prior to any other document. The borrower entered the office thinking they were getting pre-approved but in actuality the were signing the loan application in blank. The application was to be re signed at closing in front of notary agent. This didn’t happen.

    The mortgage broker had a fidiciary by law to serve the borrower in their best economic interest. If not, they lose their license. The DRE doesn’t see it that way. The borrower can report it all they like but nothing will happen. The best way a borrower can protect themselves is to never buy a home again.

  10. “Justice for All” does not exist. It’s “Justice For Us” and Us dos not include the borrowers unfortunately.

  11. Excuse me, the spirit of the law is to protect borrowers – not since 2000 as far as I am concerned. I can speak directly to this issue and will: Mortgage brokers, without question, knew better and many, not all, but many. clearly took advantage of the borrower – both in the prime and subprime world – Only if the borrower was highly sophisticated in finance, were most able to target the loan officer’s agenda – and that was to make as much as he could or get away with without bringing it to the attention of the borrower (at least until after the deal was closed and he got his money).

    I have seen some managers of mortgage brokerage firms accept a deal from an originating loan officer only to change the terms that the poor loan officer quoted but could not end up controlling.

    The mortgage brokers were experts on what they were offering to the people because they handled an array of investors, not just one or two. And there was always that select group of loan officers that knew how to persuade a borrower to sign whatever and this is why I hold the owner of the mortgage brokerage firm accountable – they not only allowed it, they supported – a “get what you can”, we need this loan – we have a product to produce for Wall Street.

    It would be a shame to not be able to do business with an independent broker, but they asked for it – instead of standing up and selling safe loan products, they pretty much joined the team to sell the dangerous loans – gosh, how did they sleep at night. When I was a broker, I use to give my clients a “did you know letter” telling them – be careful – did you think about this or that, before you sign off. AFter finding out that all of the investors were operating on this same path, I quit originating loans in 2001 – Everyone appears to be waking up, but a bit too late, wouldn’t you say. Besides, this has been going on since the cows came home.

    This is one of the easiest issues we have to resolve and the only thing we have to remember is ethics, honesty, integrity – the loan officer needs to ask himself these questions – would I make this loan and would I pay the mortgage broker the fee he is asking?

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