Unresolved issues over compensation are what give mortgage brokers high anxiety about the qualified mortgage rule.
The Consumer Financial Protection Bureau as part of this process is trying to align the Real Estate Settlement Procedures Act and the Truth-in-Lending Act. The result will be the new document which discloses fees to the consumer.
Depending on the wording of the rule and the structure of the new disclosure, the mortgage brokers interviewed in a roundtable discussion at NAMB National in Las Vegas are concerned about their ability to continue rebating funds to the customer.
Speaking with Origination News managing editor Brad Finkelstein in this portion of the roundtable are NAMB president Don Frommeyer, president-elect John Councilman, vice president Rocke Andrews and treasurer Andy Harris.
FINKELSTEIN: What donít you know about the qualified mortgage rule that you are afraid of?
HARRIS: The analytics of the rule. Right now you have RESPA/TILA integration, it hasnít happened yet. The way a wholesale transaction works right now is that you have in Box 1 of the good-faith estimate the origination fee. In Box 2, you have the lender credit. Box A is what the consumer needs to look at, which is the adjusted origination fee. My concern moving forward with the integrated disclosures is will the CFPB fix it to where all channels are level on how it looks to the consumer? How do you show it is a bona-fide discount? If the lender-paid credit is reflected as not a bona-fide discount, it would prohibit the borrower from buying the rate down. Thatís a big concern. The second one is risk-based pricing isnít included in the cap if itís in the rate sheet. However, it is included if the borrower pays upfront to cover that. We all know risk-based pricing is from the agencies. If there is a 50 basis point hit for credit score and then the borrower pays half-a-percent discount fee. Are they paying half-a-percent discount or are they paying that 50 bp hit? It is an unintended consequence. This is affecting all channels.
ANDREWS: It doesnít make a whole lot of sense that the agency add-ons count sometimes when the borrower pays them upfront, but they donít count when they are already incorporated into the discounts. Because a lot of times you are unable to get the rate down to par for the borrower anyway. It has nothing to do with your origination channel and what it is being charged; it is what the agencies add on. If you are doing a cash out (refi loan on a) duplex for an investor, sometimes you canít even get to par. You are starting out at one-and-one-half points right there. If those are going to start counting towards the 3% cap, you canít do those loans.
HARRIS: The whole point of the 3% was to avoid extensive fees to a consumer, what a consumer pays. Itís not to include things consumers donít pay. The market will dictate competition through interest rates and things like that. The regulators are trying to satisfy people that donít understand it like the consumer groups. They donít realize they are hurting themselves by making these assumptions on how things work, especially on how a broker or wholesaler works.
FINKELSTEIN: Don, you said NAMB is conducting a survey to show CFPB how much cash is rebated to the consumer who uses a broker?
FROMMEYER: What we asked for has to do with 2012, how many loans you made, what your volume was, and how much of a mortgage rebate you gave back to the consumer. We originally asked for mortgage broker companies to give us that information. We have now asked some lenders to give us some of that information so we can put that into the mix and see what it does. The number is around 138 companies and we were right at $130 million that was returned to the customer. The unique part about this is for the most part the mortgage broker is the only one that does that. Those who do mini-correspondent or are correspondents, those people keep all of the money. They donít really return anything. The disparity comes from you are seeing more and more customers asking the question about ďI want no closing costs. Give me a good-faith estimate with no closing costs.Ē And brokers canít do that because by law they have to disclose all fees even if they are paid in the mortgage rebate. We are working on those to submit to CFPB. They were very interested in the information we have to give them. I donít think they realize there was that much money being passed back from the mortgage broker to the consumer. If the 3% rule includes the mortgage broker operation you are no longer going to able to have that small mortgage broker company give all that money. They will have to become part of a bank or a mini-correspondent and then they will take all of the money instead of rebating it to the customer.
FINKELSTEIN: So this is a competitive issue that sets you apart as mortgage brokers?