Posts Tagged Federal Reserve System

Another Good Faith Estimate

The Consumer Protection Bureau is thinking about overhauling the Good Faith Estimate they introduced just 18 months ago because even that seem too difficult for most to understand. Heck, it’s been a year-and-a-half and I’m just starting to like it and understand what the CPB was trying to get at with GFE2010. Of course it takes the government to take a 1 page Good Faith Estimate form and turn it into a 3 page document.

According to a survey conducted by ING Direct consumers polled about the new GFE had this to say:

  • More than one in three (36 percent) homeowners described the GFE as being “complicated” or a “waste of time.”
  • 68 percent of homeowners surveyed were unable to correctly identify the purpose of the “Title Services” charge on the GFE. In other words they didn’t know what they were paying for.
  • 53 percent of homeowners spent 30 minutes or less reading and reviewing the GFE.
  • One in ten (11 percent) homeowners never even looked at the document their loan officer sent them.

As a loan officer the things I get asked the most are:

  1. What is my interest rate?
  2. What is my payment?
  3. How much cash do I have to bring to the closing?

#3 is not addressed on the current GFE2010 or either of the two new documents being proposed. #3 is VERY important also. In many purchase transactions the seller pays all of the borrowers closing costs so all the borrower needs to bring to the closing table is their down payment. It would be good to know that, huh? I usually end-up sending the “Fees Worksheet” (the old Good Faith Estimate) along with the GFE2010 because it addresses all the above and breaks the fees out into easier to understand terms than the new one.

Unlike last time though, this time the CPB is asking our opinion on what is easiest to understand and what we’d like to see. Check-out the two finalist forms in PDF format then vote for the one that makes most sense to you. You can also add notes after you vote if you feel the form is missing some information you feel is important to the loan disclosure and shopping process.

See the new forms here:

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6 consequences of the Federal Reserve’s rule on loan officer compensation

The Federal Reserve’s rules limiting independent loan originatior’s compensation (but not the compensation of big banks) will hurt the consumer in these six critical areas:

  1. The loan officer can not lower their compensation to help the consumer, so the consumer will pay more when unexpected costs or situations occur during the loan process. These can be items like a title insurance policy actually being $100 more than expected or some other costs that come-up at the closing table. It is common practice for the loan officer to cover these overages out of their compensation.
  2. The lender will have to pay for the unexpected expenses from #1, thus they will have to increase underwriting and processing fees to build-up a slush fund to pay for the overages when the come-up.
  3. The borrower loses options resulting in higher rates and/or fees.
  4. Service level will decrease because many smaller companies will exit the business, creating a monopoly for the big banks who then can price-fix fees and rates to their advantage. Reduced competition equates to increased costs to the consumer.
  5. Rural areas will suffer with few or no lenders in the areas where bigger banks don’t set-up offices. These are the areas that smaller lenders and brokers excel in service.
  6. Lower income borrowers will suffer because lower loan amounts will not be available. We are already seeing many larger lenders increasing the minimum loan amount they are willing to fund. Smaller lenders and brokers again excel in these underserved markets.Minorities will also be vastly underserved. An independent study done by George Washington University evaluating over 2.2 million mortgages originated by both big banks and mortgage brokers found that those loans originated by big banks for minorities averaged nearly 2% more in APR than those originated by mortgage brokers: 2.93% APR less to African American borrowers, 1.182% less to Hispanic borrowers and 2.296% less to lower income borrowers of all ethnic backgrounds.The savings on second mortgages were even greater. Overall, independent mortgage loan originators serve minorities and lower income borrowers much better than big banks do.

Watch the video below for a great explanation of how independent mortgage loan originators save you money and how the new Federal Reserve rules will harm you.

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The reality of loan officer compensation

The Federal Reserve’s new loan officer compensation rules were to take affect yesterday, April 1, 2011. However after a lawsuit was filed by the National Association of Mortgage Professionals (NAMB) and the National Association of Independent Housing Professionals (NAIHP) that was shot down by a Federal judge the United States Court of Appeal put a stay on the implementation of the new regulations until they could more closely be examined.

Of course, at the basis of the issue is the fact that the Federal Reserve pushed-through this law without due process of law, and it just gets worse from there.

The Federal Reserve’s loan officer compensation rules will increase borrower’s costs and reduce their ability to shop around for the best rate and lowest fees.

The basis of the law is just: Protect the consumer from being ripped-off when buying a home or refinancing. The Fed feels that independent mortgage loan officers make too much money, and have done so through screwing home owners by steering them into loan products that pay the loan officer more, such a subprime loans. This of course ignores the fact that the majority of subprime mortgages were originated directly by the big banks and lenders such as Countrywide, not the independent loan officers working at small brokerages.

Of course, on top of that those types of loans are now gone and are no longer an issue.

The truth is that 90% of Utah mortgage loan officers make less than $54,000 a year. They are not the millionaires the big banks would have you believe (as channeled through the Federal Reserve and to the media). In fact the median income for a mortgage loan officer in Utah is $45,000.

Under the new Fed rule that dictates how mortgage loan officers at independent mortgage companies can be paid that figure would be cut by 35% to 50% while loan officers at the big banks are being paid along the same compensation plans they always have.

Also, under the new Fed rule the loan officer is no longer able to pay all or part of the borrower’s closing costs, so lender credits to make it so the borrower doesn’t have to bring in any additional money at closing, no-fee loans and streamline refinances is a thing of the past.

You as a borrower will have to pay for any additional charges that come-up at closing like credit supplements, credit repair fees or higher than anticipated pay-offs of your current mortgage or when a Realtor doesn’t negotiate enough seller concessions. For instance I  recently paid $800 of a borrowers closing costs out of my commission so they would only have to bring their down payment to the closing table.

Overall the Fed rule is a case of those making the rules have no idea about what they are making rules for.

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