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Broker Fees Overcounted. No, Undercounted!

FEB 1, 2013 5:56pm ET
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WE’RE HEARING…mortgage brokers think they’re getting screwed under the qualified mortgage rule that was issued last month. While consumer groups think they are getting entirely too easy a ride.

Brokers claim the Consumer Financial Protection Bureau is counting all the compensation the “brokerage entity” receives from the wholesaler/creditor toward the 3% points and fees cap.

A brokerage firm has overhead and other expenses, which should be excluded from the cap, according to the brokers. Like a bank, a mortgage brokerage firm should count only the compensation its pays to its loan officers.

In issuing the final QM rule, it appears the bureau is mainly concerned about “double counting” payments that go to a brokerage firm.

“Similarly, the bureau does not believe that where a payment from either a consumer or a creditor  to a mortgage broker is counted toward points and fees, it is necessary or appropriate to count separately funds that the broker passes onto its individual employees,” the bureau said.

But the bureau is seeking additional comments on the accounting methods to ensure loan origination compensation is not counted twice under the 3% points and fees cap.

But the brokers believe they are being squeezed by the bureau’s proposals.

“Including the compensation received by the broker entity is wrong,” a broker said.  But the bureau doesn’t want to get into the complex and cumbersome business of tracking overhead expenses.

Meanwhile, consumer groups are on their guard because they are concerned the CFPB may be “undercounting” the compensation the wholesaler receives in certain transactions.

Where the borrower choses not pay a broker upfront, the creditor can roll the points into the financing and charge a higher rate. The broker receives 3 points in one example and the creditor makes 3 points.

In other words, the borrower is supposedly charged 6 points but the loan is still is considered a qualified mortgage. Imagine that. Consumer groups want to stop that undercounting.

The comment period in this QM points and fee cap issue ends Feb. 25.

SPICY LANGUAGE: Along with some poster-flaming and spicy language (so reader beware), this mortgagegrapevine.com thread has an interesting discussion of a point central to any loan originator—compensation. Inquirer wants to know why he’s gets 40 basis point to 125 bps per loan but someone else gets up to 350 bps. BTW as First Amendment buffs we won’t censor our posters no matter how crude they get. But we will warn you!

MOST POPULAR: The most emailed content this week on our website is “The Iceberg of HOA Lien Dangers” by Amilda Dymi. The item details risks associated with HOA liens, and the ones showing now may be just the tip of the iceberg. And you thought HOAs were dull. Extra! Extra! Read all about it.

FORECLOSURES, BILINGUAL STYLE: California MBA president Susan Milazzo walks you through a California law that requires foreclosure docs to be written not just in English but Spanish, Chinese, Tagalog (Phillippines), Vietnamese and Korean. Lots of Asian influence in the Golden State, obviously. Our featured video for the week.

SHOUT OUT: Good news today that the mortgage industry finished 2012 with 29,000 new hires for the year. That’s a full 11% increase from the end of 2011 (though obviously still down from the subprime heyday). We believe full recovery will be achieved by private sector initiative that stimulates new jobs, so we’re going to give a shout out to the whole mortgage industry! In addition, we’ve come across two companies this week that have added more than 10 new hires, or are about to. Equity Loans LLC of Atlanta hired 12 new people last year as it popped loan origination by 50%. LPS is looking for a few good men, and women, and so will have a career open house in Westminster, Colo., on Feb. 7 to try to fill at least 30 tech positions for its office there.

Mark Fogarty is editorial director of the SourceMedia Mortgage Group and has been commenting on the mortgage market since 1984. Brian Collins is the group’s senior editor and D.C. bureau chief. He has worked the mortgage beat since 1988.

Comments (5)
Consumer groups won't stop til everyone does everything in life for free. At that point, everything stops ticking. We can only hope the CFPB realizes the necessity of us to earn a living while we still work on ridding the industry of originators that charge max pricing every chance they get.
As for the grapevine....please continue to let us know when a thread like that has occurred. I generally don't have time to read threads, but when I do I prefer to laugh my butt off like I just did!
Posted by | Friday, February 01 2013 at 7:05PM ET
I do not work for CFPB nor FHA or any other Gov. agency. How is it that they can control what I can charge on a loan. This seams like a good case for the Courts. They don,t go after Wall Street, But think they can tell Loan Officers what income we should make for our families.
This seams wrong to me.
Posted by | Saturday, February 02 2013 at 5:26PM ET
Share the wealth !!! It's about time that profits on brokers are curved, when I audit files and see settlement statments where the YSP equals 5K and sometimes up to 10K plus, 150 BPS charged in origination fees!!! come on boys, let send our kids to college by just originating 10 loans. Broker Owners can cut back on their split to help curve the revenue their making. THIS IS WHY WE GOT INTO THIS MESS!!! GREED....
Posted by Joe D | Monday, February 04 2013 at 7:35AM ET
Joe are you a employee whose employer covers business overhead that you never see, count, let alone care about? The example you give... i would have to agree is extreme and should be curbed. I cannot recall a loan i have ever done in 16 years that warrants a $10,000 check.

Or are you an auditor that sees the revenue to the broker on a loan that in many cases matches exactly what the borrower would have received had they done business with a retail origination channel, but somehow you take issue with a broker that offers the same thing but makes more money than the retail originator? Remember brokers generally have to create real relationships with referrals sources and their customers whereas a retail originator is generally an order taker and clock puncher. The only reason i even challenge you is because i wonder the last time you worked on Super Bowl Sunday because a referral made an offer on a house and needed some guidance on their potential loan??? That's right, some of us a very small business owners that are sick and tired of being categorized in the way you have suggested in your post. If you prefer to live your life believing that all of us are inherently evil, that's your choice but is it right and just?
Posted by | Monday, February 04 2013 at 11:42AM ET
In American, we have been a free country. I believe, as many responsible loan officers believe, that we can not allow a few bad apples spoil our industry. But, this regulation appears to go to far. In no other industry that I know does (or should) our government get involved with what may be charged. For example: I may go out and buy a suit for $100 or $500 for the same suit depending where I buy it and whether it is on sale. It is my choice. I believe these rules are against our freedoms as Americans and will end up costing the consumer more in the long run with more and bigger government and regulations.
Posted by | Tuesday, February 05 2013 at 3:59PM ET
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