The Federal Reserve Board (The Board) Proposed Rule revising Regulation Z as it pertains to closed-end mortgages proposes major changes to mortgage disclosures, originator compensation, and anti-steering language. The comment period for this Proposed Rule is open until Dec. 24, 2009.
The National Association of Mortgage Brokers' (NAMB) “Call-to-Action” addresses the Board’s proposal on originator compensation that will eliminate YSP. Although the Board does acknowledge that YSP may provide some benefits to consumers, it believes that this benefit may be outweighed by costs incurred by consumers who obtain a higher interest rate or negative loan terms and/or features (i.e. pre-payment penalties, adjustable rate, etc). To address those concerns, the proposed rule seeks to eliminate all payments to loan originators that are based on the terms or conditions of a loan. This provision can be referred to as “Option-A.”
NAMB requests that you, as a mortgage professional, express your concern over the Board’s “Option-A” proposal on originator compensation in a personalized letter with specific examples of how this proposal will negatively impact your business and customers. When writing the letter, NAMB strongly recommends you consider answering the following: What value can YSP provide to your customers? Again, utilizing specific examples will demonstrate to them that the elimination of YSP would ultimately be catastrophic to the housing industry. Your submission needs to reinforce the fact that the removal of this vital consumer choice will further narrow our already limited ability to serve the consumers who desperately need our assistance to continue to foster a housing recovery. Below, please find specific talking points to help formulate your letters.
► YSP is not simply a means of compensating mortgage originators; YSP also serves consumer interests by affording greater flexibility in structuring loans, and enhancing consumer choice.
► YSP allows consumers to compensate originators for origination services when they pay none, or only some of the origination fees or closing costs up front. This is a legitimate and legal way for borrowers to finance those up front costs through the interest rate.
► Choosing to finance closing and origination costs through the rate allows borrowers to purchase and start building wealth through their home without requiring significant outlays of cash in addition to the downpayment at the outset of the loan.
► Eliminating YSP will remove no-cost and no-fee loan options for borrowers. YSP is beneficial for many consumers who are ready to own a home but have to overcome the hurdle of significant closing costs, or for customers that choose to realize the savings of keeping their cash and financing their costs through their loan rate.
► Mortgage originators often use YSP to pay for part or all of their title fees, which, in a given transaction, may not be borne by either the borrower or lender. In such instances, the originator’s net compensation is reduced accordingly.
This “Call-to-Action” is the first in a series of “Calls-to-Action” on various sections of the Proposed Rule, which will be sent to prior to the comment period deadline. Your participation is very important to ensure that the mortgage broker message is reiterated to the Board during the comment review process.
Directions for submitting comments to the board
You may submit comments, identified by Docket No. R-1366, by any of the following methods:
► Agency Web Site: http://www.federalreserve.gov. Follow the instructions for submitting comments at http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm.
► Federal eRulemaking Portal: http://www.regulations.gov. Follow the instructions for submitting comments.
► E-mail: email@example.com. Include the docket number in the subject line of the message.
► Fax: (202) 452-3819 or (202) 452-3102.
► Mail: Jennifer J. Johnson, Secretary, Board of Governors of the Federal Reserve System, and Constitution Avenue, NW. , Washington, DC 20551.
► All public comments are available from the Board's Web site at http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm as submitted, unless modified for technical reasons. Accordingly, your comments will not be edited to remove any identifying or contact information. Public comments may also be viewed electronically or in paper in Room MP-500 of the Board's (20th and C Streets, NW.) between 9:00 a.m. and 5:00 p.m. on weekdays.