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<< Previous   of   Next >>   ADVERTISEMENT   CONTACT THE HERALD Mike Benbow, Business Editor benbow@heraldnet.com   Published: Sunday, November 11, 2007 Bill would solve many mortgage ills By Tom Kelly The National Association of Mortgage Brokers is so concerned that recently proposed legislation could crush its revenue model that it scheduled national teleconferences and prepared sample letters for members to mail to their respective members of Congress. In an e-mail to the group's brokers dated Nov. 1, Denise Leonard, the organization's government affairs chairwoman, wrote: "Mortgage brokers are facing extinction. The U.S. House of Representatives is considering a bill that will fundamentally change the way we are paid, outlaw YSP (fees paid to brokers by money lenders), and legislate underwriting guidelines into law. Additionally, we fear that all subprime lending will cease to exist due to excessive lender liability." Association members reported that 500 phone lines were made available for two teleconferences last week and all lines were busy. An unknown number of brokers could not get through because of the volume of calls. The bill, HR 3915, is known as the Mortgage Reform and Anti-Predatory Lending Act of 2007 and was recently introduced by Barney Frank, D-Mass., House Financial Services Committee chairman along with Reps. Brad Miller and Mel Watt, both North Carolina Democrats. A mortgage broker is often confused with a mortgage banker. A broker does not actually lend money. A broker acts as a liaison between a consumer who needs a mortgage loan and a lender with money. Mortgage brokers receive a loan fee from either the borrower, the lender or both. Borrowers may pay brokers an origination fee based on percentage of the loan amount. In some cases, the broker receives a fee from the lender. Fees paid by the lender to the broker are known as yield spread premiums. It is this fee that brokers are concerned about losing. In a letter to association members, George Hanzimanolis, the group's president, voiced serious concern about the legislators' decision to eliminate the originator's ability to receive direct and indirect compensation. "The indirect compensation mortgage brokers receive from lenders is a defendable fee that actually lowers closing costs to consumers," Hanzimanolis wrote. "It is an imperative tool for first-time homebuyers, and critical to enable so many people to own a home and manage their finances." While some analysts concur with the group that lender fees provide a useful avenue to cash-strapped borrowers, others say that many borrowers frequently do not understand that they are paying a fee in the form of a higher interest rate and that the exact amount of the fee is not known until the borrower is already committed to the transaction. According to the House Financial Services Committee, the bill will prohibit the steering of borrowers to a loan that is not in the consumer's best interest and call for licensing and registration of mortgage originators, including brokers and bank loan officers. In addition, the new legislation will set a minimum standard for all mortgages, which states that borrowers must have a reasonable ability to repay. A controversial section of the legislation attaches limited liability to those who secure, package and sell home mortgage loans outside of these standards. However, individual investors in these securities would not be liable. While brokers and bankers have been accused of causing the mortgage meltdown by granting loans to unqualified borrowers, the intense pressure to provide these mortgages to Wall Street in the form of mortgage-backed securities also has contributed to the problem. The bill also expands and enhances consumer protections for "high-cost loans" under the Home Ownership and Equity Protection Act and includes important protections for renters of foreclosed homes. The broker association approves of language in the bill mandating strict national standards for all loan originators, regardless of where they work within the mortgage industry. The bill would require criminal background checks, testing to demonstrate basic knowledge of loan products and continuing education and professional ethics training for all who originate mortgage loans. "These provisions represent a huge victory for consumers and for NAMB, which has fought for years to make it easier for consumers to compare loan products offered in the different mortgage sources, such as banks, lenders and mortgage brokers," Hanzimanolis said. "The mortgage industry has changed dramatically in recent years, but the laws and regulations designed to protect consumers have lagged behind. These reforms will help modernize the regulatory system and drive bad actors from our industry." Tom Kelly's new book "Cashing In on a Second Home in Central America: How to Buy, Rent and Profit in the World's Bargain Zone" is available on www.crabmanpublishing.com.

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