patrick.net

Some interesting articles on new broker fee rules and what they mean for the housing market:

From Charles Hugh Smith:
Fed Aims at Mortgage Fraud, Shoots Housing Market in the Gut
http://www.oftwominds.com/blogapril11/new-mtg-rules4-11.html

the already-limited mortgage market is about to become more limited, as small mortgage brokers are being shoved out of business. Call it “unintended consequences” or a cloaked plan to channel more of the mortgage business to the “too big to fail” big banks, but regardless of the motivations, the rules end up limiting consumer choice and making it harder for home buyers to get a loan.[…]
Under the new rules, the mortgage broker cannot pass on a part of the commission to the loan officer, who must now be paid an hourly wage or salary. The idea is to remove the incentive of the loan officer to push the consumer into a more lucrative loan, but the result is to remove the incentive to remain in the independent mortgage business.

And also…

At issue is section 1413 of the Dodd-Frank Act, which states that any violation of the loan originator compensation rules will offer the borrower a “defense to foreclosure” for the life of the loan.
In other words, if a delinquent borrower can go back and find some violation of the compensation rules in his/her mortgage origination, the lender is effectively barred from foreclosing on the borrower’s loan.
Given the risks this presents to banks, many observers, including the two senators, expect the large banks which typically buy mortgages from independent brokers and small lenders will shun these mortgages. Why buy a mortgage which could go sour via default that could preclude foreclosure as a remedy? Talk about putting a bullet in the housing market when it's already down: the new rules create huge disincentives for banks, too big to fail or otherwise, to buy independently originated mortgages.

These rules will poison the housing market in several ways. If mortgage brokers can no longer make enough in commissions to stay in business, then the mortgage options for home buyers will shrink. The most productive loan officers will find reduced incentives to risk remaining independent, and so there will be less competition offered to the big banks which already dominate the industry.

BUT from the nytimes:
Broker Fee Rules Take Effect
http://www.nytimes.com/2011/04/17/realestate/17mort.html

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. [emphasis added]

HA! But…

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.

So how much of an impact will these rules ACTUALLY have anyhow?

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.”

But (also from the nytimes):

Although I don't like seeing ANY more financial power given unto the big banks, I don't see this doing much except cutting out a middleman. Unless I misunderstood the rules, people can still choose to borrow at local banks and independent credit unions, right?

#housing