This past week, I was on the phone with a mortgage broker who was feeling overwhelmed by the new Federal Reserve ruling on loan officer compensation. She was in tears thinking about how she is going to have to close her operations because she just cannot make any money. I know her feelings are not just unique to her and will be felt nationwide because many mortgage trade associations are pleading with lawmakers to change the ruling.
I am not going to get in on the technical aspects of the ruling, but I will make some bold predictions.
For starters, I feel this ruling will be modified or changed completely. The bulk of this ruling favors the depository mortgage banks. Most of these banks are also mortgage investors, servicers, wholesalers, lenders and many have their own retail operations. Depository mortgage bankers are better at working with large pools of mortgages and portfolios, and working with retail and brokering. Banks do not want to invest in brick and mortar because it is too expensive. Banks needs brokers to sell their mortgage products because brokers are better at sales than banks. Now that banks are going to be taking on brick and mortar and heavy payroll expenses in order to support the retail side of their mortgage origination operations, they will find that they are not good at it.
Without a strong mortgage broker population, mortgage loan origination volume will drop and revenue that banks count on from loan products—selling loans to investors, servicing and selling servicing rights—will dry up very quickly, creating another type of mortgage crisis. Banks will see their liquid assets decrease, by quickly lowering their rankings, while having to still maintain expensive mortgage retail operations.
The industry relies on mortgage brokers to reach out to the consumers that banks just have no access to.
Banks need to fight to overturn the Federal Reserve’s ruling on loan officer compensation because the life of a loan begins at origination and if there are no loan originators, then there will be no loans, or at least a drastically reduced number of loans.
The Federal Reserve’s attempt to protect the consumer from predatory loan officers has placed the non-bank loan officer on the “endangered spices list” and everyone along the food chain will suffer.
The mortgage crisis will be extended as a result of this ruling and it contradicts President Obama’s intent for curing the mortgage crisis and the economy.
If you want to understand the severity of this ruling … look at it this way: How many mortgage loan officers were there prior to the required testing of the National Mortgage Licensing System and Registry (NMLS)? How many licensed mortgage loan officers are there now? How many of the mortgage loan officers who failed the NMLS test are now working for banks? I think we would all want to know the answer to that question. You can estimate that another one-third of the mortgage brokers will close up or morph. If legislation is written that counters economic development (pro small business), then it is not good. How can this type of legislation parallel the President of the United States’ direction for the healing of the U.S. economy?
I wish I had the answers, but I don’t. However, I do have a suggestion … do not overreact and make a lot of rules to show that you are doing something. Having busy work is not productive.
If you do not believe the government has overreacted, take a look of the number of loan defects as a result of making rules to show the nation that the government is doing something.
Annual percentage rate (APR) violation used to never register high as a problem with mortgage loans. It is one of the highest-ranking mortgage loan defect problems, as well as Truth-in-Lending (TIL) and Good Faith Estimate (GFE) problems. All of these good ideas mean to help the consumer and they should. But they are so difficult and the banks cannot get it right either. I almost forgot … did I hear a rumor that there is a government agency trying to change it back or to where it can be done correctly?
All I would like to see is some common sense and as my grandfather uses to say, “Horse sense.” Or, those with a military background: “Do you kill your wounded?” We are all suffering, so let’s look at what sustains and gives life.
Tommy A. Duncan is executive vice president of Quality Mortgage Services LLC. For answers to your QC and FHA questions, please contact Tommy at (615) 591-2528, ext. 124 or e-mail [email protected]
You may also visit Quality Mortgage Services LLC on the Web at www.qualitymortgageservices.com.