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January 24, 2011

How the Dodd-Frank Mortgage Bill will Affect Broker Compensation

Category: Home Loan News,Mortgage Industry News – admin – 5:24 pm

As many loan professionals are already aware, April 1st is the date that the Dodd-Frank mortgage reform bill kick in and significantly change the way brokers and loan officers are compensated. Clearly the compensation plans for loan originators will see drastic changes any day. We wanted to remind industry insiders that this bill was created to help U.S. consumers. Clearly there was very little thought to how these changes will impact the mortgage and real estate industry.  According to a spokesman for Real Estate News, “Many loan companies have already started to let loan officers go.”

  The compensation for mortgage brokers will change as well on 4/1/2011.  Home loan brokers will not be able to be paid from the mortgage lender and the borrower.  Some insiders believe that these changes could impact the mortgages rates being hiked. In the end, the borrower could be charged more points and fees to achieve a specific interest rate.New subsection 129B(c) [1] prohibits yield spread premiums (“YSPs”) from being paid to or received by mortgage originators. Compensation paid to a loan originator in the form of YSPs or “other similar compensation” may not result in a loan officer’s total compensation to vary based on the terms of the loan, other than the amount of the principal. Incentive payments based on the number of home loans originated within a specified period of time are not considered YSPs.

This new loan origination provision also restricts attempts to structure the payment of compensation to home loan originators in another form that could have the same effect as YSPs, which is to steer consumers to higher priced loans. A mortgage originator may not receive any origination fee, whether or not a YSP, except from the consumer, and any person who knows that a consumer is directly compensating a loan originator may not pay an origination fee. (Bona fide third party charges that are not retained by the creditor, mortgage originator, or an affiliate of the creditor or mortgage originator are not considered origination fees). If the loan originator receives no “compensation” directly from the borrower and the borrower pays no upfront discount points or origination points, then the loan originator may receive and any person may pay an origination fee.

Presumably, these mortgage loan restrictions are based on the assumption that, ultimately, the origination fee comes out of the consumer’s pocket, and these payments would tend to steer a consumer to higher priced loans or otherwise increase the cost of the loan. But as the mortgage originator is entitled to compensation, this provision assures that the originator is allowed to be compensated, only once. Section 129B also provides that the Board may, by rule, waive or create exceptions to this provision.

Other Prohibitions for Loan Origination

Section 129B further directs the Board to write regulations to prohibit:

  • loan originators from steering a consumer to obtain a loan that the consumer lacks a reasonable ability to repay;
  • originators from steering a consumer to obtain a loan that has predatory characteristics (such as equity stripping, excessive fees, or abusive terms);
  • loan originators from steering a consumer from a “qualified home loan” for which the consumer is qualified to a loan that is not a qualified home loan;
  • abusive or unfair lending practices that promote “disparities” among equally creditworthy consumers based on race, ethnicity, gender, or age;
  • home loan originators from mischaracterizing a consumer’s credit history or the available loans or mischaracterizing or suborning the mischaracterizing of the appraised value of the property securing the loan; and
  • if a loan originator is unable to suggest, offer, or recommend a loan that is not more expensive than the loan for which a consumer qualifies, discouraging a consumer from seeking a loan from another loan originator.

Read the entire Dodd Frank Mortgage Reform


November 27, 2010

Lead PLanet Says Refinance Leads Fall in November

November is typically the slowest month of the year for online mortgage lead activity.  According to the Lead Planet, refinance leads have been falling over the past month even as home purchase lead volumes increased. Refinance leads are down an average of 4.8% over the past four weeks.  Read the original Lead Planet article online > Home Loan Leads Surge


August 17, 2010

Federal Reserve Cuts Lender Paid Yield Spread Premium

The Federal Reserve was busy Monday eliminating commission opportunities for mortgage brokers across the nation. The Fed announced several new rules like banning YSP loan commissions in an effort to minimize abusive mortgage lending practices.  According to the Lead Planet, a mortgage marketing company in Southern California, the Fed actually said that mortgage lenders paying yield spread premium, also known as YSP led to the collapse of our housing sector.   The truth is that the Fed has had knowledge of broker paid commissions since it began well over a decade ago.

Will Banning Mortgage Rebates Help the Mortgage Industry?

These new home lending regulations are part of the new financial reform legislation mandated by Congress.  The new rules apply to mortgage loan originators, brokers and loan companies, including banks and mortgage firms employing them. Under the new regulations loan originators may no longer be paid a increased commissions for suggesting one home loan over another.

Will this be the end of No Cost Mortgages? The rule change is intended to prevent loan originators from receiving higher compensation at the cost of damaging consumers.  Mortgage lenders can still continue to receive fees that are based on a percentage of the loan amount, however, which is common in the mortgage business.  Many loan originators have been sharing their yield spread premium commissions with their borrowers in an effort to reduce or even eliminate closing costs.  Where do you think no cost mortgage loans originated from?

Loan originators will also be prohibited from receiving compensation from both the consumer and another party such as a bank or mortgage company. Consumers were typically not informed that loan originators and brokers often received payments for their work from both parties. The new rule seeks to protect consumers who agree to pay the loan agents through a higher interest rate or through fees such as points charged up front on a mortgage are not paying more as a result.

Another rule finalized Monday would require borrowers to be notified when their home mortgage has been sold or transferred.  The Fed also proposed a rule to make it easier for consumers to learn who owns their loans. Under the provision, once a mortgage servicer is asked by a borrower for that information, the loan servicer would have to provide it within a reasonable time, which generally would be 10 business days.

The new YSP rules are set to go into effect April 1, 2011.  Read the original article online > Fed Bans Lenders from Paying YSP to Mortgage brokers


July 21, 2010

Mortgage Broker Reform

The U.S. government has been working frantically to pass mortgage reform that would require loan modification licensing.  The U.S. Department of Housing and Urban Development, which oversees compliance with the SAFE Act, has proposed that employees handling loan modifications for struggling homeowners also meet the licensing requirements, a policy opposed by banks.  John Courson, CEO of the Mortgage Bankers Association said that mandating licenses for mortgage loan-modification specialists could slow hiring and hinder efforts to cut home foreclosures.” Courson continued, “We say this is not originating a new home loan, because the loan terms are being reduced on their home mortgage to increase the affordability and reduce the likelihood of a foreclosure.”

The housing department hasn’t set a deadline for a decision, said Lemar Wooley, a spokesman.  According to Anthony Hsieh, CEO of Loan Depot, a home loan lender based in Irvine, California, the process costs $3,000 to $6,000 to train and pay the fees for each new employee to comply with the mortgage licensing system. “The mortgage reform law is supposed to make sure we kick the bad ones out,” said Hsieh. “It could be the opposite, keeping the good loan officers out.”  Read the original article online > Loan Modification Licensing and Mortgage Reform


July 16, 2010

Home Purchase Loan Applications Fall

The number of home loan applications in the U.S. for home purchases fell to a 13 1/2-year low last week, the Mortgage Bankers Association reported Wednesday, in a further sign of the slump in home buying since a federal tax credit concluded at the end of April.  There have been fears for months that the incentive was stealing future sales and would result in a new leg down for the housing market once the support ended. New-home sales sunk to a record in May while pending total sales tumbled 30% from April.

Home loan applications for new homes were down 43% from the Independence Day week last year, said the MBA. The bad news comes even as home mortgage rates sink to new record lows.  Those rate declines have been giving some lift to applications for home refinancing, which hit a 14-month high two weeks ago. But even the MBA refinance mortgage report fell 2.9% last week from a week earlier as its gauge for purchases dropped 3.1%. The share of applications for refinancing was flat at 78.7%.


July 8, 2010

Wells Fargo Announces Significant Job Cuts in Consumer Finance

According to Mortgage News Source, Wells Fargo is laying off nearly 4,000 employees from its’ Consumer Finance Division that was responsible for non-prime mortgage lending.  The company announced that they were ceasing to originate subprime mortgages in an effort to mitigate loan portfolio risks.  Mortgage News indicated that Wells Fargo “had been struggling with delinquencies and loan defaults from their own bad credit home mortgages.”  Acquiring the loan portfolios from the Wachovia merger may have pushed their subprime risks too far.

Wells Fargo announced they were closing 638 Wells Fargo Financial offices, which increased its number of retail branches to 6,600 after the Wachovia merger. The bank also has 2,200 Wells Fargo Home Mortgage offices and will eliminate about 2,800 employees from its Wells Fargo Financial unit and will most likely slash another 1,000 jobs in the next year. Read the original news article, > Almost 4,000 Wells Fargo Mortgage Layoffs


June 20, 2010

Thrifty Tips for Buying Internet Mortgage Leads

Today, most mortgage brokers that have less to spend so it is imperative that they buy leads cautiously.  Internet mortgage leads can be a very cost effective form of marketing if you know how to purchase leads from lead generation companies.  Be careful of how and where you purchase leads. Ask the account executive at the lead company what their minimums are and be cautious when buying leads in bulk.  If a lead company is generating 50 leads a day and 15 leads a day that meet your filters, you have to wonder how a lead company could send you 250 leads in a 3-day span.  Clearly these are either old or brokered leads. In a recent article, Bryan Dornan the founder of mortgage lead generation company, the Lead Planet reminded mortgage companies to “Consider more than just the cost per lead.”  Dornan suggests that “the cost per funding is the bottom line.”  See the original mortgage lead buying post at the Mortgage Lead Vault > Cost to Funding Ratio Matters with Mortgage Leads


May 21, 2010

The Lead Planet Talks Mortgage Lead Buying Strategies

The Lead Planet published a press release Friday discussing the state of the mortgage lead market.  The mortgage lead generation company, released their 2 cents on buying leads and partnering with the right lead company.  They recommend that lead buyers focus on building a relationship with a lead company that doesn’t sell their leads too many times.  The Lead Planet also stresses the importance of purchasing leads from a direct lead source. (a company that generates their own online mortgage leads, rather than buying leads sold to them from a lead broker)

Just a few days ago Freddie Mac published a report indicating that home loan applications had reached a 13-year low. Is this a true indication of the demand for home financing or the reality of the lending guidelines and underwriting for mortgage loans has tightened to the point that most borrowers already know they do not qualify?

The Lead Planet reminds us that there are enough challenges in this mortgage market just finding loan applicants who even qualify.  Conventional, VA and FHA mortgage lending guidelines have all implemented stiffer requirements for home buying and mortgage refinancing.  Read the original article at the Lead Planet Blog > Mortgage Lead Buying Secrets or call the lead support team at 619-600-5720.


May 14, 2010

Declining Interest Rates Spur Mortgage Refinancing

Freddie Mac announced today that the current mortgage interest rates are the lowest they have been in 2010. The Wall Street Journal reported that home builder stocks rallied in early trading follow a reported spike in mortgage loan applications last week as homeowners take advantage of some of the lowest home mortgage rates since March.

The Mortgage Bankers Association’s seasonally adjusted index of home loan applications, which includes both purchase mortgage and refinance loans, rose 3.9% for the week ended May 7th. The four-week moving average of mortgage applications, which removes some of the volatility of weekly changes, was up 4.4%. Mortgage refinancing led the way; the MBA’s seasonally adjusted index of home refinance applications rose 14.8%. A 30-year fixed-rate mortgage, including lending fees, averaged 4.96%, the lowest level since week ended March 12th. Refinance rates were still higher the 4.76% last year and the all-time low of 4.6%.  The demand for mortgage loans for buying new homes dropped following the expiration of the heavily publicized federal home buyer tax credits. Read more at Mortgage Refinance Right.com


May 3, 2010

Fannie Mae Dropping Interest Only Home Loans?

Category: Fannie Mae News,Mortgage Industry News – admin – 11:35 pm

Fannie Mae announced that it will tighten lending requirements for its interest-only loans and adjustable rate mortgage loans. If a borrower wants an interest only mortgage through Fannie Mae, for example, he or she will have to make down payments of 30% of the sale price. For ARM’s, Fannie will only buy those underwritten to ensure that borrowers could still afford payments even if their interest rates reset to the higher of either one of the home loan’s initial interest rate plus two percentage points or 2) the maximum the interest rate the loan can rise to, known in the industry as the cap rate. As an example, for a home mortgage loan with a beginning rate of 5% and a cap rate of 6% borrowers would have to demonstrate they could still keep up payments even if the mortgage rate rose to 7%. If the cap rate is 8%, borrowers would have to be able to afford an 8% mortgage. For an ARM with a fixed period (ie. 5/1 ARM) any initial period with 5 years or less qualify at greater of note rate +2% or fully indexed rate, and interest only mortgage loans will have a maximum LTV 70% and a minimum FICO of 720 with 24 months minimum reserves. Balloon Loans, unless they receive special approval, are going away entirely with Fannie.


February 25, 2010

Jumbo Mortgage Loan Programs Improving

The recent mortgage meltdown caused jumbo mortgage rates to soar and the availability for non-conformning loans shrunk significantly. However signs are indicating that jumbo rates are declining and lenders are more willing to make loans that top the limits for Freddie Mac, Fannie Mae and the FHA.

Phil Kelly had 18 more months to go before the fixed rate on his $2.5-million mortgage became adjustable.  But when Kelly, a former computer executive living in Rancho Santa Fe, learned he could knock his interest rate down by a full percentage point by mortgage refinancing, he went for it.  “It’s always tough to pick the exact bottom or top of anything,” Kelly said. “But I think this rate is about as low as you’re going to get.” For most California borrowers, jumbo mortgage refinance options have been few and far between.

Jumbo Mortgage Rates:  For home loans greater than $729,750 in counties with the highest-cost housing — shot up during the financial crisis as lenders and loan investors shunned anything tainted with even a whiff of higher risk. Rates on big mortgages were especially high relative to those on smaller loans.  But in a boon for borrowers in California’s expensive housing markets, the jumbo-home loan market is starting to return to normal.

According to rate tracker Informa Research, two weeks ago, the average interest rate on 30-year fixed-rate jumbos dropped to 5.79%, a nearly five-year low, Services of Calabasas. It edged up to 5.88% on Tuesday, still very attractive by historical standards. The average has dropped from the 7% in late 2008.  Today, fewer borrowers qualify for jumbo home mortgage loans, because stated income loans have disappeared.

Jumbo rates are even lower on hybrid adjustable mortgage loans. With these hybrid ARM’s, the interest rate is fixed for three, five, seven or ten years before it becomes an adjustable rate loan. (ie. 3/1, 5/1, 7/12, 10/1 ARM)

Banks are also relaxing slightly some of their requirements for jumbo mortgage loans. That’s an encouraging sign because the market for jumbos, in contrast with the rest of the mortgage business, isn’t being supported by government backed bonds.  Unfortunately million dollar home loans are not supported by the Obama Administration.

The lower jumbo mortgage rates and somewhat easier terms reflect newfound confidence among banks in the housing market. That’s because, jumbos loans exceed the maximum loan amounts that Freddie Mac and Fannie Mae have agreed to insure.  In addition, the private market for mortgage-backed bonds dried up when the meltdown hit. So mortgage lenders offering jumbo mortgage loans in today’s market are willing to take the risk of servicing them in their portfolios.

The maximum amounts for Freddie Mac and Fannie Mae “conforming” mortgages, and for FHA mortgages, are set by Congress. The cutoff for single-family homes was $417,000 from 2006 until February 2008, when lawmakers increased it temporarily to $729,750 in certain high-cost areas, including Los Angeles, Orange and Ventura counties. Conforming loans top out at $500,000 in Riverside and San Bernardino counties and $697,500 in San Diego County.

The increased upper limits, which have been extended until the end of this year, have created a three-tier system in expensive areas, mortgage professionals say: loans of up to $417,000, which are the easiest to obtain and carry the lowest rates; “conforming jumbos” from $417,000 to $729,750, which are somewhat harder to get and have slightly higher rates; and true jumbos, with the toughest standards and highest rates.

In the boom years of 2005 and 2006, jumbo mortgage rates were typically no more than a quarter of a percentage point higher on jumbo loans than on conforming loans, according to Informa Research. That widened as the mortgage meltdown intensified and home prices dropped in late 2007. The spread ballooned to nearly 1.7 percentage points in early 2009 after the entire credit system froze.

But this year the rate spread has narrowed to less than a percentage point. It could shrink more if conforming-loan rates rise as expected after the Federal Reserve wraps up a $1-trillion-plus program to support the market for conforming loans next month.

In addition to lower rates, down-payment requirements are being relaxed in some cases. For example, to write a jumbo loan in coastal areas of Los Angeles and Orange counties, Wells Fargo Home Mortgage looks for a 20% down payment or that percentage of equity, down from 25% last year, said Brad Blackwell, a national mortgage sales manager at the lender.

The reason: Wells believes high-end home prices are stabilizing in those coastal counties. But the bank still requires higher down payments in the Inland Empire and other battered housing markets such as Florida, Nevada and Arizona, where prices for jumbo-size homes don’t appear to be stabilizing, he said.

Jumbo loans remain much harder to get than before the credit crunch and recession. Borrowers typically must have a credit score of at least 700, compared with boom-era minimums in the 600s, though Laguna Niguel mortgage broker Jeff Lazerson said at least one lender was again making sub-700 jumbos available.

What’s more, unless their down payments are very large, borrowers must provide evidence of high income, have sizable bank accounts as a cushion against the unforeseen and occupy the houses themselves.

But there are clear signs that the jumbo market has loosened. One is an increasing availability of “stated income” loans — those that don’t require proof of income — of as much as $2 million to borrowers with at least a 40% down payment, said mortgage broker Gary Bluman, owner of Real Estate Resources in Brentwood.

Also, instead of a true jumbo loan, some “piggyback” second mortgage loans are available again to help certain borrowers with 25% down payments pay for high-priced homes, Lazerson said.

Of course, adjustable, stated-income and piggyback loans were big contributors to the mortgage meltdown. But such provisions are less risky if a borrower has 25% to 40% equity.  Despite the confidence in the market that such terms imply, lenders and mortgage investors are still dealing with piles of bad jumbos made during the boom.

Delinquencies of 60 days or more on prime jumbo loans that were packaged into securities jumped to 9.6% in January, up from 3.7% a year earlier, Fitch Ratings reported this month.  The jumbo delinquency rate in California climbed to 11.3% from 4.1% a year earlier.

For now, the jumbo market remains limited to the volume of loans that banks are willing and able to keep on their books. But there is hope for a return to private outside funding. Although no jumbo loans have been turned into securities for at least two years, packages of delinquent jumbos have begun to be sold again to “vulture” investors, a sign that the secondary market for the home loans may revive, said Michael Fratantoni, vice president of research at the Mortgage Bankers Assn.  “The ice sheet,” he said, “is starting to crack here and there.”


February 3, 2010

Homebuyer Tax Credit Extended

According to data released by the Commerce Department’s Census Bureau and the Department of Housing and Urban Development, the expansion to the homebuyer tax credit, an exceptional government stimulus measure was passed to boost housing activity, new home sales took a 7.6% decline in December. The results come on the heels of National Association of Realtors (NAR) reports of similar December declines in existing home sales.  First time home buyer loans have seen a recent spike in loan application volumes since the tax credit news hit the street.


The homebuyer tax credit extended for first time homebuyers and expanded to include existing homeowners requires buyers have a contract in place by April 30 and close by June 30th. The problem, home-builder insiders and real estate agents tell HousingWire, is that consumers who tried to take advantage of the tax credit too late in the fall before realizing there wasn’t enough time to close a deal by the original November 30th expiration date have yet to reengage themselves in the home loan process.  FHA mortgage lending continues to support a majority of the first time homebuyer loans.  “With new homes, the home-builders ran out of everything they could close by the end of November,” Burns said. “There were people that wanted to buy in these communities that didn’t because they couldn’t close in time.”

As HousingWire previously reported, the JBREC December monthly builder survey showed optimism among 264 home building industry executives from public and private companies. The belief that builders will have increased community count, better orders and slightly higher prices has 57% of respondents planning for more revenue in 2010 than in 2009.

Another confidence booster is the tax credit many builders are receiving from the temporary extension of the terms of net operating carry-back laws, which let builder recoup losses from taxes paid in profitable years.  “It’s given them more confidence in their cash balances and they want to start more speculative homes because of the extra cash that they now have,” Burns said.