MELVILLE, NY—At the New York Association of Mortgage Brokers’ annual convention here, members of the board sat down to discuss how they are adjusting to changes under the SAFE Act as well as the difficulties they are facing as a result of Regulation Z. Members appear to have a positive attitude about the future although much of what lies ahead is unknown regarding specific compliance challenges, according to NYAMB officials.
New York Association of Mortgage Brokers president Susan Kreyer said her biggest concern with the federal rule on loan originator compensation is that it lumps the mortgage broker entity in with the mortgage loan originator.
Besides Kreyer, other roundtable participants included Mary Ann Pino, president-elect; Louis Borsellino, treasurer; Bonnie Nachamie, secretary; John Commons, director/past president; Gene Tricozzi, director/past president and ON’s Jennifer Harmon.
ON: As an association, how are you coping with amendments to the federal SAFE Act?
Pino: I think the New York Association of Mortgage Brokers was extremely advanced because of the position we took in terms of education. Through the association, it was voluntary. It wasn’t mandatory. We had volunteers coming in and we put together the education program four years in advance of the legislation hitting. A lot of our members were prepared in terms of what was going to happen.
Everybody is adjusting well. John has put together a fantastic curriculum on behalf of the association to receive the MLS approval. We’re moving forward in providing members the education. We want to provide the education and knowledge to our members.
Kreyer: Mary Ann is absolutely right. We did a fantastic job preparing our members for what was going to be required of them and providing them with the resources to meet those requirements and preparing them for their tests and everything else.
There’s a little push-back from the mortgage originators because they feel they are still not working with a level playing field with the federal registrants. If you work with a federal charter you are not governed by the same set of rules.
Pino: What’s happening is that two people who are doing the same job have a different set of rules.
Kreyer: However, we as an association, embrace the SAFE Act because it does elevate our members to a higher level of performance, ethical expectation and professionalism than federal charters and the depositories. That’s where the industry is going. We’re ahead of the curve and we’re ready to take on the business.
ON: You’ve talked a lot about this at your annual meeting. What are your thoughts on Regulation Z from the Federal Reserve Board?
Kreyer: It remains to be seen as to what the lenders are going to do with that. Believe me, we’re on the edge of our seats on that one.
Borsellino: The only discrepancy is the definition of a mortgage loan originator vs. a mortgage entity. The actual Financial Reform Bill specifically states the difference between the two. Regulation Z does not. There’s a problem with that.
Tricozzi: The restriction of compensation is based on the originator’s business. We’re trying to keep that separate from the entity, because business needs to make a certain amount just because of overhead. When we say that we’re limiting the entity’s income as opposed to the originators, that’s why we need that clarification.
Nachamie: The originator compensation issue, regardless of all of the other legislation that this industry has been barraged with in the last year, that issue is going to define the way our industry moves forward and how we function as mortgage brokers, as mortgage originators and also as licensed lenders. The entire financial industry is going to be affected by that given rule.
Tricozzi: The brokers were still viable and they wanted us to be in existence. They didn’t want us to go out of business.
Borsellino: The actual mortgage broker itself—they shouldn’t lump mortgage brokers and mortgage loan originators together and that’s what they are doing. You have basically the Federal Reserve having one position and obviously Congress has another position.
Commons: On a broader stroke, the mortgage industry is very reluctant to change. Obviously we’ve had more change than we can stomach in three years. People are just overwhelmed with change and are forced to live outside their box because the box they’ve been in for so long is gone. That puts them in a very tough position. When you try to look at definitions in the new regulations, until they are ironed out and all of the problems are out of them, you can’t get a defined answer to anything.
Kreyer: My biggest concern with the Fed rule is that it lumps the mortgage broker entity in with the mortgage loan originator. When it does that there are expenses that they are not recognizing that a mortgage broker business has. This rule could potentially limit our income or profitability to the pint where we may not be able to survive, depending on how they fashion this final rule and how they implement it.
Pino: We can look back two years ago and we can say the same thing took place. The industry was in a lot of upheaval and there was a lot of fear and anxiety as to what was meant for us. As an association, we prepared for the transition. We provided the education and the communication about the legislation. And we were able to stand there be there for them. I think it’s the same thing, because what we’re going through is an entirely different landscape in terms of the industry. Financial reform is exactly what’s going on.
Commons: It goes deeper than that. Now you’re talking about my money.
Nachamie: The SAFE Act gave us rules that we knew we would have to live by. This gives us limiting compensation and we’re talking about compensation that’s going to be dictated not by our own drive or by our own expertise or our own professionalism but by somebody else’s pricing module and we don’t have any control over how we learn a living anymore.
Pino: You don’t know that until we see and see what the consensus is in terms of the pricing.
Nachamie: A wait-and-see that’s never a comfortable situation.
Commons: I don’t know how you can price-fix the entire industry and do it fair where it works out beneficial both for the consumer, the lender and the investors, and millions of dollars caught up in the secondary market.
Nachamie: Price fixing with no early bird special. With the implementation of any procedure and process there are going to be glitches along the way. The industry is aware of the requirements. There are certain inconsistencies in the application by states of certain standards. I think time will cure that. I don’t think as an industry we are suffering. Individually, there may be some quirks to work out.
ON: A lot of the conference speakers here have said the future is unknown in many ways for mortgage brokers. Do you agree?
Borsellino: Yes, you have individuals that are regulating the mortgage industry that don’t know the industry that well. That’s my biggest problem.
Tricozzi: The difficult part as business people is that we have to come up with budgets and we have any idea what our income is going to be based off of and it’s a shoot in the dark.
Nachamie: We’re an entrepreneurial industry. Once we are given the ability to continue to be in business, we will find a way to make a living.
ON: What do you think about the Dodd–Frank Wall Street Reform and Consumer Protection Act?
Tricozzi: Where do you start? The whole thing is unfortunate. It’s going to take a while for it to shake out. They say HUD is going to be able to review it. The Federal Reserve is going to be the governing body in implementing it. They’re going to have to come up with the rules and regs.
Nachamie: There is a new regulator in town, too.
Commons: We were clearly told in Washington that a lot of this stuff in the bill they knew they couldn’t fix and that they are going to come back and do a lot of clean up. That’s just the way it is in politics. Sometimes you have to put the whole thing through to get it through and then implement clean up.
Pino: The results are going to create seven new agencies. The changes are far-reaching. It affects not only residential but commercial lending and every aspect of the financial industry will be impacted by this, and the bottom line.
Tricozzi: It was supposed to be designed to eliminate the “too big to fail.” It created the “too small to exist” basically.
ON: What’s your take on Bank of America exiting warehouse? Will someone take its place?
Pino: I think we’ve all been exposed to the exits. We’ve seen them throughout the last three years.
Nachamie: Any time a primary lender exits the marketplace as far as brokers being in business, we think the pricing we can offer consumers may be higher or not in the realm of competitive or not going to be cost effective.
Now Bank of America will buy loans from large lenders and large lenders will buy loans originated by mortgage brokers, so now I just put that middle man back in. Now I have a new broker level so will the broker be able to provide competitive loan pricing to the consumer?
It’s a wait-and-see as well because we don’t know what kind of wholesale pricing Bank of America will be willing to give to correspondents who are wiling to undertake the responsibility for broker-originated loans.
Commons: For our industry it’s still an unfortunate sign of the contraction in our direct industry. Its movement in the wrong direction—it shows concern to everyone involved. If you did business with them or not, when you heard of the news that they pulled out, it’s just another, “Oh my God, somebody else.” How many else are left? Who else is coming in? Are there people jumping in to take their place? I don’t see it. It’s not the movement.
Tricozzi: I think Bonnie’s right. From what I’ve heard from some of the seminars, some of the smaller guys will be then creating that wholesale channel that they will be selling to the guys that don’t want like the Bank of Americas. You can’t be small to run the channel.
Kreyer: Right, the financial regulatory reform bill makes it onerous on them.
Commons: You can’t just switch the responsibility to somewhere else and say you still have an open and free market that’s going to be free sailing.
ON: As a trade group, do you have any forward-looking thoughts or predictions; any goals for 2011 as an organization?
Kreyer: We will be as proactive as we can be as new regulation presents itself, as older or current regs gets tweaked and cleaned up. We are in a reactionary mode right now. We have been for three years and we will continue to be so. At the same time, we will actively lobby in Albany as a state association to do our best to make sure on a state level things don’t get completely out of hand.
Nachamie: Now more than ever, the role of a trade association is essential to the success of mortgage brokers.
Commons: The people who are left that run the association and the people in the industry who are left are resilient to a fault if I may. They have seen the house fall down. They’ve stayed there and are going to make it right. They are not leaving. They are going to ride out the storm.
Borsellino: Our economy is driven by real estate and the transactions. I have to say I’m an optimist. The only way to get out of the economic situation we are in is to promote lending and accessibility to money.
Nachamie: Real estate has always been one of the things that will pull us out of difficult economies. I hope there has not been so much legislation and so much regulation that could stand as an impediment to us being able to keep the wheel turning to make people buy homes.
Commons: Clearly, we have an advantage surrounding New York City. Unemployment, I believe, is lower in our area because of the local economy. We obviously try to run trends than follow them. Things are getting better. They are not as bad as some places in the country, which have been suffering.
ON: Will the foreclosure moratoriums impact vacant homes on the market?
Tricozzi: From what I have read, with the moratorium on foreclosures, that puts a moratorium on short sales and the whole market. They are saying 25% of the sales now are foreclosed properties. If you put a moratorium on it, that can only slow the market down more.
Commons: It’s too early to actually find out how deep of a shake up that really was. How many documents were signed just to have them signed? Will this impact the people you already threw out of these homes? Are there huge class action suits to come or not? The people who lost their homes—did someone actually read those documents?
Nachamie: It’s offensive to hear that documents were signed without review. Were those documents wrong or were they just signed without review? Was there truly a need for the remedy that has now been put in place with the moratorium? We’ll never know the answer to that.
Kreyer: I know that our association over the last two years, as a result of several different initiatives, we’re in growth mode. Any mortgage loan originator, mortgage broke, mortgage professional or ancillary service provider that is not a member of this association needs to join this association and help us on this unified front. We need the strength. We need to have our voices heard. There is strength and safety in numbers. Our focus this year is to build our membership.
