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Do you want your loan approved? Part II

May 28, 2008

A view from the top: NAMB President examines RESPA reform proposalGeorge Hanzimanolis, CRMSMBA, FHA, HUD, FHA Commissioner Brian Montgomery While at the 25th Annual Regional Conference of Mortgage Bankers Association in Atlantic City, N.J., I had the opportunity to listen to Federal Housing Administration (FHA) Commissioner Brian Montgomery speak about the FHA's programs, FHA reform, and the U.S. Department of Housing and Urban Development's (HUD) initiatives through the remainder of this year. One needs only to listen to Montgomery speak for a few minutes to realize that he is an honest, passionate individual who cares about improving the home buying process for the consumer. Later that evening, I had dinner with Commissioner Montgomery. He asked me my opinion of the Real Estate Settlement and Procedures Act (RESPA) reform proposal and the position of the National Association of Mortgage Brokers on the subject. My response was, "We love 90 percent of it, but the other 10 percent needs to be revisited." We all know NAMB and its members always support efforts that will simplify the mortgage settlement process and assist consumers in comparative shopping for mortgage products. In fact, it was not long ago when NAMB proposed a simple, one-paged Good Faith Estimate (GFE) that basically mirrored the HUD-1 Settlement Form. Here are a few points of the new RESPA reform proposal that should be pointed out. HUD has proposed a new GFE. It is four pages long and addresses several key items. First, it would disclose the loan amount, term, interest rate, initial monthly payment, lock period, whether there is a prepayment penalty or balloon payment, and whether the loan includes escrows for taxes and insurance premiums. It would also require disclosure of settlement service costs consolidated into major settlement cost categories. So far, this sounds pretty good because it offers transparency to the consumer, and hopefully allows them to shop and compare without confusion. There are tolerances of up to 10 percent for all other settlement costs. Settlement costs provided on the GFE must remain available for at least 10 days to prohibit loan originators from increasing their charges stated on the GFE, absent of "unforeseeable circumstances." By the way, unforeseeable circumstances are defined as acts of God, war, disaster, or any other emergency that make it impractical or impossible to perform, as well as circumstances that could not have been reasonably foreseen at the time of the GFE application. Sound confusing? The rule also defines a "Mortgage Broker" as a person (not an employee of the lender) or entity that renders origination services in a table-funded or intermediary transaction. It would apply to a loan correspondent approved under 24 CFR 202.8 for FHA programs. It would eliminate the current exclusion of an "exclusive agent" of a lender from the definition of a "Mortgage Broker." The elimination of that exclusion is an important piece of consumer protection, as it lends itself to a more even playing field. That "even playing field" is an issue that NAMB continues to fight for in Washington, D.C. However, the employee of the lender is still exempt, and it is my opinion that this should apply to all originators. Another positive is the clarification of "Required Use." NAMB has been fighting long and hard to defend against businesses that force customers to use their affiliated mortgage company. This does not allow the consumer to shop comparatively, and impacts the brokers' ability to compete in a free market. So, now for the 10 percent that we'd like to see changed. The yield spread premium (YSP) disclosure requires a Mortgage Broker to disclose the YSP on the GFE as a "credit to the borrower" for the specific interest rate of the loan. Brokers must disclose all fees from the borrower and the lender in Block One as "Our Service Charge," disclose YSPs as any credit "For the Interest Rate of 'X'" in Block Two, and subtract it from the "Service Charge" to arrive at the "Adjusted Origination Charge." If you find this formula confusing, imagine the confusion for a borrower. In fact, when the last RESPA reform proposal was rolled out and the "Credit to the Borrower" was proposed, the Federal Trade Commission did two independent studies. In both studies, they found that when a borrower compared the Mortgage Broker's GFE to a more costly GFE from a lender, the borrower chose the more costly GFE by the lender as the better choice. In order for the GFE to have any value, the broker GFE and lender GFE must be identical. Lenders and mortgage bankers should disclose their service release premium, which is the same as the brokers' YSP, in the same manner as the brokers. This would truly provide the borrower with the best opportunity to shop and compare. However, if the bankers and lenders do not disclose in this manner, it would be a disadvantage to the consumer and the broker community to require Mortgage Brokers to do so. When I became president of NAMB in June 2007, I pledged to protect the Mortgage Broker industry and defend your good name. We have a great support staff at NAMB, terrific lobbyists who understand our issues and volunteers who have passion. We will continue to fight the fight. In return, I ask for your support of NAMB. If you are a member, thank you. Please ask others to join. If you are not a member, please visit the NAMB Web site at and join today. Your voice is important. Help us defend your business and fight for laws that are fair for the industry and beneficial for consumers. George Hanzimanolis, CRMS is president of the National Association of Mortgage Brokers. He may be reached via e-mail at [email protected].
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