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Re-examining CFPB Move’s Broker Ramifications

MAY 25, 2012 10:24am ET
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The CFPB surprised many when its proposals announced earlier this month contained a provision to eliminate certain critical differences between brokers and creditors concerning the compensation of loan officers. This may not, however, be as significant for brokers as it may first appear.

Currently, brokers cannot receive both origination points and yield spread. Creditors, on the other hand, can receive income both from an investor on the sale of the loan and from the consumer.

Under the CFPB's proposed rules both creditors and brokers could receive compensation, and pay their loan officers on specific deals provided:

1. There was no compensation being paid on the terms of the loan,

2. The origination fee was a set dollar amount for all transactions,

3. Any discount points were bona fide,

4. Borrowers were offered the option of a loan with and without up-front fees.

It would appear at first that the CFPB's proposal to eliminate the compensation differences between creditors and brokers would significantly benefit brokers.

However, until the CFPB decides how to handle the difference between the Federal Reserve's anti-steering presumption (requiring only brokers to show the three lowest cost alternatives) and Dodd-Frank (which contains no such provision) the marked advantage still lies with creditors who need not provide this comparison.

Indeed, the three-loan beauty pageant (as I refer to it) essentially requires brokers to maintain a static singular yield spread. Hence, providing brokers the chance to charge a flat up-front fee will not, in my estimation, significantly alter the business landscape sufficient to offset the advantages that exist for creditors.

Comments (2)
Ari,

Your shallow presentation of the facts appears to be the talking points of the CFPB.

First order of business to protect consumers is to eliminate any discussion of YSP with consumers, in other words fast forward to pre November 1992 origination era. The entire disclosure of YSP was the Banks and Mortgage Banks attempts to eliminate Mortgage Brokerage companies. What it did create was a lot of complexity for consumers, who had to distinguish 2 different GFE's for the same loan, one from a Bank and one for a Mortgage Brokerage. Every study from every federal agency has proven this Fact.

All the consumer wants and needs to know when making their decision is:
-- What type of loan fixed or variable & the terms
-- What is my loan amount
-- What is my interest rate
-- How much cash will I need for closing cost, pre-paids and down payment.

Anything beyond this is pure abuse of consumer. Great example is flat fee. As no origination entity could ever lower their fee down to the smallest loan and keep their doors open, this CFBP policy will have a disparate impact against minorities. This is the exact type of abuse the CFPB issued a warning to the lending community in their April bulletin.

The question, will the Director of CFPB step down and will the individuals at CFPB that are pushing the flat fee origination be held accountable to the strictest punishments the CFPB and Justice Department have planned for private businesses and their employees in their April 2012 Bulletin warning of disparate impact policies?

Fact: No, they will not. They will continue in their positions of incompetency from the real world. Creating crushing regulations that have complete disregard of consumers and the businesses that serve.

The CFPB has proven to be as illegitimate as the Director that runs this mafia style organization. They utilize instilling fear in the community to gain control over citizens. They will continue to run afoul with the laws of our land as their leader was anointed with Congress in session but ignored citizens' right to Senate hearing and approval. There is no reason for this illegitimate organization to be expect to be held accountable.

Shame on you Ari for not using your position in the media to challenge the CFPB. Rather you are a puppet for their talking points.
Posted by | Wednesday, May 30 2012 at 10:16AM ET
The very concept of a flat fee is absurd. I often wonder if any of those that make these laws have any concept of the free market. It is well established that as the government steps in to "fix" a problem, all it does is make the situation far worse. The current regulations that we are currently working in has served the consumers in no way other than to further confuse them. Further, the current system which LOs are paid hurts repeat clients (refi specifically), which as usual is the complete opposite of what was "intended" by the current regulations. Now, this new coming regulation to a flat fee system will either put brokers out of business or will discriminate against those with a lower loan amount; which tends to be in the lower economic scale. The end result will be that those that have capital will buy homes, and those without capital will be left on the sideline simply watching others buy up homes whom they will soon rent from.
Posted by | Thursday, June 14 2012 at 8:57PM ET
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