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The current political pendulum is swinging toward consumer protection and empowerment. For well over a year, the media has inundated us with stories about class action suits against lenders. Housing Secretary, Mel Martinez, made his announcement of the proposed changes to the Real Estate Settlement Procedures Act (RESPA) on June 26, 2002. HUD’s argument is to create a better market place by way of bundled services, eliminating overcharges and excess profits taken by less scrupulous mortgage brokers. Here are the critical proposed changes: 1) A mortgage originator is obligated to provide a Good Faith Estimate in which the closing costs have to be accurate within a 10% tolerance. If fees come in over this level, the originator will pay the difference. 2) If a lender wants to offer an up front rate lock it must be for at least a thirty day period. The lender has to reserve the rate; however the borrower does not have to commit to the lender. 3) Any excess yield spread premiums or rebates a broker receives directly from the lender are credited to the borrower. (Direct Lenders have no disclosure requirements regarding YSP’s or rebates. 4) Brokers must disclose their compensation up front on the Good Faith Estimate and cannot receive additional compensation over and above what is stated. Consider these issues from the consumers’ standpoint, as well as my own. The GFE. Why shouldn’t the borrower know within a 10% tolerance what the costs are? Why shouldn’t the client be able to easily compare costs and rates and know they will be there after they digest the information? A home is the largest purchase most Americans will make in their lives. When I think about all the loans I’ve lost over the years due to competing loan officers bold-face lying about rates and fees... Borrower bias tends to go with the lowball quote. The coalition of responsible lending estimates borrowers are overcharged $9.1 billion due to predatory lending practices. The
yield spread premiums being credited to the borrower instead of
the mortgage broker (normally this is the broker’s compensation
on a home loan) is actually problematic for the borrower. If the
IRS views this as compensation, that means a tax consequence to
the borrower. This will also greatly reduce zero point and zero
cost loans which have given considerable cost savings to consumers. |
