Mortgage brokers plan to tell Congress that new regulations are raising costs for prospective borrowers while placing mortgage bankers in a much more competitive position than mortgage brokers. Also on the list of grievances are the loan originator compensation rule and the appraisal code, which has reportedly led to higher appraisal costs, lower quality reports and underpaid appraisers.
Driven by higher lending costs, consumer fees have increased substantially, according to prepared testimony from Mike Anderson, vice president and chairman of government affairs at the National Association of Mortgage Brokers. From the fourth quarter of last year to the first quarter of this year, lender and originator expenses per-loan are estimated to have risen by nearly $1000 per loan.
Anderson is scheduled to give his testimony on Wednesday before the House Subcommittee on Insurance, Housing & Community Opportunity — Committee on Financial Services.
He noted that borrowers face increased out-of-pocket costs for appraisals and higher loan fees as a result of covering originator costs if they are required to cure errors on the Good Faith Estimate of Closing Costs because originators can no longer lower their compensation to cover the difference.
Anderson explained that customer service has waned for borrowers with smaller mortgages since such loans no longer make economic sense.
He described how one NAMB member was originating a loan to finance a foreclosed property, but a last-minute increase in the property insurance premium killed the deal because the broker couldn’t lower his fee to make up the difference. The borrower’s only option was to start the process over or walk away from the transaction.
Anderson says it is unfair that mortgage banking firms are exempted from limitations on fee changes while mortgage brokerages are not. He also highlighted the disparity created because mortgage brokers can’t pay employees on a commission basis while no such restriction exists for mortgage lenders.
“NAMB is gravely concerned that the recent changes promulgated by the Federal Reserve Board and Congress have done little to address the significant root causes of our mortgage and housing crisis, facilitate a recovery in the market, or create a more consumer-friendly mortgage lending environment,” the written testimony said. “In the few short months since the Federal Reserve Board’s rule on loan originator compensation was implemented, mortgage broker businesses have suffered significant and irreparable harm as a result of these new requirements.”
The trade group executive called for the Truth in Lending Act to be amended so that the definition of a “loan originator” mirrors the definition from the Secure and Fair Enforcement for Mortgage Licensing Act — a move he says would reduce confusion.
The brokers also have a beef with the Home Valuation Code of Conduct. Anderson explained that since the implementation of HVCC, instances of appraisal fraud have doubled — from 16 percent of all mortgage fraud cases in 2006 to a 33 percent share since 2009.
“Although the HVCC was designed to reduce the instances of fraud occurring in the appraisal process, it instead sparked significant turmoil, decreased competition in the appraisal industry, and eliminated virtually all checks and balances historically associated with home appraisals,” Anderson stated.
He claims that appraisal management companies wind up paying appraisers less than they had been earning — leading to work by more inexperienced appraisers. He highlighted how appraisers are driving further and completing reports in areas they are unfamiliar with, while appraisal costs have “risen substantially.”
“It has become an unsettling trend to see borrowers pay in excess of $450 for an appraisal, where the appraiser only earns half of that amount in compensation for his/her services, the rest being retained by the AMC responsible for hiring the appraiser,” the statement said.
The solution to many of today’s lending problems, according to Anderson, is eliminating bad products — not over-regulating the mortgage industry.
