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Brokers, Bankers at Odds Over YSPs

Brokers say disparity will drive them out of market

March 13, 2008

By SAM GARCIA


Mortgage bankers support recommendations announced today by the Bush administration to increase regulation of mortgage brokers and are calling for better disclosures of yield spread premiums paid to brokers. But mortgage brokers are warning that they will be driven out of the market if banks and lenders aren't forced to make the same disclosures.

The President's Working Group on Financial Markets released recommendations about how to avoid another credit crisis. The report, Policy Statement on Financial Market Developments, based its recommendation on an analysis of what led to the turmoil.

The current problems began with a dramatic weakening of subprime underwriting standards in 2004 and was enabled by originators, underwriters, ratings agencies, investors and investment bankers.

"Originators, underwriters, asset managers, credit rating agencies, and investors failed to obtain sufficient information or to conduct comprehensive risk assessments on instruments that often were quite complex.," the report said.

A subsequent loss of investor confidence led to a seizure in the structured finance markets.

Among recommendations from the group -- which include the Treasury Department, the Federal Reserve Board of Governors, the Securities and Exchange Commission and the Commodity Futures Trading Commission -- are the implementation of strong nationwide licensing standards for mortgage brokers, oversight of mortgage companies that is consistent between states and the federal government, and more thorough disclosures.

Mortgage bankers support the groups recommendations.

"We agree with Treasury's recommendation that mortgage brokers should be held to stronger licensing and enforcement standards and that stricter safeguards against mortgage fraud should be put in place," Mortgage Bankers Association Chairman Kieran P. Quinn said in a statement today. "Furthermore, we agree that borrower disclosures, including a better disclosure of mortgage broker compensation, are critical."

But mortgage brokers disagree with mortgage bankers.

In testimony before the Small Business Administration's Regulatory Fairness Board, National Association of Mortgage Brokers President-elect Anthony Atkins said he was concerned about the disparity in disclosures required for broker compensation and mortgage banker compensation, according to a transcript of his prepared remarks yesterday. He noted that these disparities could worsen based on rulemaking efforts by the Fed and the Department of Housing and Urban Development.

"When consumers shop for a mortgage through a mortgage broker, they are presented with a disclosure highlighting the mortgage broker's fee," Atkins explained. "When shopping at banks and lenders, consumers receive no similar disclosure."

He cited studies from HUD and the Federal Trade Commission that indicated prospective borrowers have more trouble determining more affordable loan programs when only broker compensation is disclosed. He said the poor comparison leads loan applicants to choose more expensive loans.

"Without any requirement for mortgage lenders and bank loan officers to disclose their financial interests in a mortgage transaction, mortgage brokers will be driven out of the market completely," Atkins stated. "Consumers will face higher costs and fewer options when shopping for a mortgage loan."

NAMB is also unhappy about the a recent agreement between the Attorney General of New York and Fannie Mae and Freddie Mac that will ban brokers from ordering appraisals -- which Atkins said amounts to a tax on borrowers.

He explained that appraisals ordered by mortgage bankers are worthless if a borrower chooses to go with another mortgage company. But appraisals ordered by brokers enable applicants to shop for the best deal without having to order new appraisals.


Sam Garcia worked in mortgage lending for twenty years prior to becoming publisher of MortgageDaily.com.

e-mail: [email protected]


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