NAMB warns of unintended harm to borrowers in mortgage reform bill: Hails legislative call for national standards for all originatorsMortgagePress.comHR 3915, Mortgage Reform and Anti-Predatory Lending Act of 2007, YSP, Rep. Barney Frank The National Association of Mortgage Brokers has praised many of the consumer protection provisions of the mortgage industry reform legislation introduced by Representatives Frank, Miller and Watt, but again warned of the potential unintended harm consumers will face if the Yield Spread Premium (YSP) paid to Mortgage Brokers is eliminated as stated in their co-sponsored bill, "The Mortgage Reform and Anti-Predatory Lending Act of 2007." With regard to the elimination of the YSP, NAMB President George Hanzimanolis voiced serious concern about the legislators decision to eliminate the originators ability to receive direct and indirect compensation. The indirect compensation mortgage brokers receive from lenders is a defendable fee that actually lowers closing costs to consumers. It is an imperative tool for first time homebuyers, and critical to enable so many people to own a home and manage their finances. The NAMB President said he hoped to work closely with legislators and consumer groups so that all parties understand the important role YSP plays in securing a home loan. TITLE 1 (Mortgage Origination) The NAMB president went on to applaud language in the bill mandating strict national standards for all loan originators, regardless of where they work within the mortgage industry. The bill would require criminal background checks, testing to demonstrate basic knowledge of loan products and continuing education and professional ethics training for all who originate mortgage loans. These provisions represent a huge victory for consumers and for NAMB, which has fought for years to make it easier for consumers to compare loan products offered in the different mortgage sources, such as banks, lenders, and mortgage brokers, Hanzimanolis said. The mortgage industry has changed dramatically in recent years, but the laws and regulations designed to protect consumers have lagged behind. These reforms will help modernize the regulatory system and drive bad actors from our industry. NAMB commended language that would require loan originators to provide a simple, straight-forward disclosure of their role in the mortgage transaction, including all fees and other sources of compensation, and to do so at the onset of the process. Such disclosures will eliminate confusion on the part of the borrower, and even strengthen the borrowers bargaining position when shopping for a mortgage, Hanzimanolis said. It will also help expose activities of unscrupulous originators who try to shield themselves from detection by keeping consumers uninformed. NAMB also endorsed the bills establishment of a national registry if it is governed by a federal agency such as the Federal Trade Commission, it includes every individual mortgage originator (including loan officers working for federal- and state-chartered banks and lenders, credit unions and mortgage brokers), and every individual pays a registry fee to cover operational costs of the registry and to create funds for enforcement and consumer financial literacy education programs. Hanzimanolis praised the bills sponsors for applying new mandates even-handedly across the board to all originators. The all-originator approach this bill envisions will be good for consumers and good for the mortgage industry, he said. TITLE II (Minimum Standards for ALL Mortgages) Although full review of the bill is currently underway, NAMB expressed concern about putting into legislation the strict underwriting standards included in Title II. We need to have confidence in the markets ability to correct itself, Hanzimanolis said. Further restrictions through legislation will cripple the industry, and will adversely affect the very people were trying to help. One measure NAMB strongly supports is the elimination of special incentives paid by lenders to mortgage originators who sell particular loan products. The function of the mortgage originator is to provide the consumer with choices. Since some programs are more profitable for lenders, we see lenders offer originators incentives for steering a consumer to a particular program. As brokers, NAMB members see this as a disservice to the consumer, and therefore believes the practice should be prohibited. TITLE III (High-Cost Mortgages) NAMB opposes a provision to reduce the points and fees trigger for high-cost loans under the Home Ownership and Equity Protection Act (HOEPA) from eight percent to five percent, and include all costs and fees charged to the borrower. Hanzimanolis said NAMB is concerned many lenders will decide not to make loans that cross the proposed HOEPA threshold, which would make many consumers vulnerable as interest rates rise. Hanzimanolis likened this provision to government sanctioned red-lining. These restrictions are going to cut off credit to people who are generally in lower economic areas who deserve and need credit, he concluded. For NAMB's full testimony presented on Oct. 24, 2007 by NAMB President-Elect Marc Savitt before the House Financial Services Committee regarding HR 3915, "The Mortgage Reform and Anti-Predatory Lending Act of 2007," please click here. For a link to a summary of HR 3915, "The Mortgage Reform and Anti-Predatory Lending Act of 2007," click here. For the full text of HR 3915, "The Mortgage Reform and Anti-Predatory Lending Act of 2007," click here. For updates concerning HR 3915, visit www.namb.org.