LONG BEACH, CA—California’s position in the forefront of the real estate business is undisputed. More transactions take place there than in any other state. The California Association of Mortgage Professionals has been out front on a number of issues affecting the business; as this discussion was being held, the group was getting ready for its in-state lobbying day where members would meet with their Congressional representative in their local offices pushing for tweaks to the Financial Reform Bill when that piece of legislation comes up for technical corrections.
As one participant put it during the discussion, mortgage brokers are part of the community. They are the people active at the grassroots level to help build it up. If they do something wrong, they will never be able to do business again.
At the group’s recent meeting here (a first-time joint effort with the California Mortgage Bankers Association), CAMP president Dale DiGenarro, vice president-government affairs Fred Kreger, vice president-secretary Ken Jones, immediate past president Ed Smith Jr., and past president Fred Arnold met with Origination News managing editor Brad Finkelstein.
ON: Dale gave a figure during the conference that of the 45,000 mortgage brokers registered with the Department of Real Estate, only 15,000 are now in compliance with the SAFE Act? Is that because the others have left the business or because people are lax in getting things done?
DIGENNARO: I think it is a combination of both. Some people have decided that they don’t want to stay in the business because it is just too challenging. And then some are just slackers and haven’t gotten it done. We did a webinar today with the DRE and we had 1,700 people signed up. We could only accommodate 1,000, so we have another 700-plus (who are interested) when we market it again we’ll pick up some more. We are working with the DRE on that front. They gave us the list of the 25,000 to reach out to and contact.
ON: Has it been a smooth transition in California to the new regulatory scheme?
KREGER: Quite frankly, when I did it personally (registering with the Nationwide Mortgage Licensing System), it went pretty smooth. The unfortunate part is the NMLS website itself is not that intuitive. I know Fred (Arnold) called up a couple of times and they were pretty responsive on the phone. I was actually pretty surprised when you called for help they were there ready to go.
DIGENNARO: They’re great. They’ll stay with you on the phone until you get it taken care of.
ARNOLD: We’ve been told for over a year that we needed to do this. There are a lot of testing schools or programs out there to help you pass the test and learn the information. I think the people that are going to be serious about doing business in our business are going to invest the time and the money in order to do it. So it is going to separate the ones that really want to be a professional in our industry from the ones that maybe were doing it as a hobby or looking at in that fashion. As far as the cost of it, it is a reasonable cost to be a professional in this business. I think that is really important. You have to pass your educational requirements, you have to pass the test, and I think it is about time we have a standard in our industry, a bar if you will that we all need to adhere to and to aspire to. We’ve been asking for it for years.
DIGENNARO: It has been a little bit challenging in California because of the two regulators that the originators operate under, the DRE and the Department of Corporations. Those that may have a DRE license that went over to work at a DOC company and what they had to do and what standards they had to meet. That has been very confusing actually.
SMITH: It has been more confusing for consumers. Consumers have no idea (regarding the different types of licenses).
ON: Are these new rules now a selling point for Californians to use mortgage brokers?
SMITH: Mortgage brokers under the DRE have always had a higher standard. We’ve always had a higher education requirement. We’ve always had pre and continuing education requirements. We always had fingerprinting and background checks. This is something our association has fought for years. I think the other distribution channels are finally raising up to our level of education, to our level of competence to be in the business. So to answer your question, I think it is going to make it better because you have more of a level playing field for education and minimum entrance criteria.
DIGENNARO: I think in the future, consumers will begin to reach out more and more to the loan originators who have the license and the education as opposed to someone who is a bank loan officer.
ARNOLD: One thing that I think is going to be the biggest benefit over the next couple is those that have poor business practices are going to be run out of the industry because they can’t jump from state-to-state, they can’t jump from one type of licensing to the next type of licensing. That is really important long-term for our industry. That is the biggest consumer protection in all of this. Getting education is fine; us being more professional is great. But the bottom line is when somebody practices poor business practices, we’re going to identify those individuals and they’re going to be able to jump from state-to-state or different regulatory agencies and hurt the consumer.
ON: The Federal Reserve Bank has just come out with its compensation rule. Where does CAMP stand?
JONES: We issued a paper when the rule was proposed in August 2009. There are issues in the rule. It has some very positive points and there are some challenges. It does change the way that mortgage loan originators are going to be compensated. In a sense, it takes away a little bit of the free market system. We’ve always supported the intent of the rule, to avoid the possibility that a loan broker or retail lender spot somebody that looks like they don’t understand what’s going on and they overcharge them or up selling them to the wrong product. Our feeling is always that could be best prevented through disclosure. However, now that the rule is going to be implemented on April 1, what we’re doing is working with our membership and the wholesalers and teach everybody how to best use the rule to the benefit of the consumers.
ON: Some consumer groups feel the rule does not go far enough. Is it a fair rule?
JONES: Consumer groups have been fixated on the concept of yield-spread premium. I think the Federal Reserve sees that it is a very progressive tool to be used by borrowers and a great benefit to them to be able to bring in some more money so they don’t have to pay so much out of pocket in exchange for a slightly higher rate. I applaud the Fed for that realization and I think they have taken a stance against those who would wipe it out to the detriment of consumers. In that sense the rule is fair.
DIGENNARO: I think that primarily comes from a misunderstanding of YSP. We’ve seen quotes from some of the legislators that it is characterized as a bonus that the lender is paying to the originator for up selling the interest rate. If used properly, that is not the case at all. One thing the rule will do, more often than not, that YSP or servicing-released premium will go back to the consumer to cover their closing costs. That is a good thing.
ARNOLD: Back in 2005, 2006, 2007, in the subprime days, YSP was utilized improperly by some banking, mortgage banking and brokerage shops as additional compensation and none of the money was being passed on to the borrower in the fashion that it was always designed to do, which was to trade rate for closing costs. It is that perception about YSP that is being brought into the A paper arena. If we eliminate YSP, we eliminate choices for the consumer and it has really bad unintended consequences.
SMITH: Especially on the lower end. It is going to really be detrimental to your lower-end first-time buyers or small loans where people don’t have a lot of cash to close. I think it will create classes of people that are going to be able to get into homes or not be able to get into homes.
KREGER: My No. 1 goal (as government affairs chairman) is to establish relationships with consumer groups with the help of our Congressional members because they are already working with them. I think what is going to end up happening is they are going to notice our goals are not confrontational and they actually coalesce with one another. Even our mission statement is the same as theirs. It begins with dialog, just like a friendship.
