Tuesday spells possible trouble for the mortgage industry: HR 3915


You may be saying that the mortgage industry deserves it…but your wrong.  It’s not that simple. A majority of the mortgage industry are good hard people who truly care about helping home owners, continuing their education (without being forced to by regulation)…just doing what’s right (telling someone they should not refi or helping someone work on becoming better prepared to buy in the future instead of now).    Yes, the mortgage industry does have it’s share of bad actors, as does many professions.  The topic of why and who’s to blame has been covered quite a bit. What’s important right now is something that may be happening on Tuesday, November 6, 2007:  HR 3915 is scheduled for a committee vote in the House of Representatives.

Here are some of the points I’m concerned about with HR 3915:

Eliminating YSP (Yield Spread Premium).   YSP is compensation that mortgage brokers receive from lenders and they must disclose the "lender rebate" to borrowers.  Often times, the YSP is used to pay for closing costs or to allow for a mortgage priced at zero origination.  Both of these are benefits to the consumer.   This may provide less options for a consumer working with a mortgage broker.   Mortgage Bankers do not disclose what they’re paid "on the back end".   Even though this portion of the bill may not directly impact me (since I work for a Correspondent Lender; I’m treated more as a banker); I still give this a thumbs down.   Competition is good for consumers; this is what America is built on.  Yes, I welcome a "smaller pool"; however, I only want the bad fish gone. 

National Licensing for ALL Mortgage Originators…YEAH, if this is for ANYONE (broker, banker, or candlestick maker) who originates a mortgage loan for a residential property.  I’ll eat a shoe if banks are not able to lobby their way out of being licensed.  There would also be a national registry of licensed loan originators which would prevent unsavory LOs from crossing state lines.  In addition, loan originators will be required to have a net worth of $100,000 or be bonded.

The "Net Tangible Benefit" Requirements.   This could really squelch home owners being able to refinance.  The LO must show there is a "net tangible benefit" to the home owner in order to refinance.  How do you define that?  This could cause investors to refuse to purchase loans, banks may refuse to issue loans and brokers would not be able to originate mortgages because the consumer could and would come back and say "you shouldn’t have sold me this loan".  The potential for liability to all in the mortgage industry would be too great and many home owners would lose the option to refinance in circumstances that didn’t seem to provide a clear "net tangible benefit".   This will impact mortgage bankers and mortgage brokers alike.   

Bottom line, many in Congress don’t understand what they’re trying to regulate.  Mortgages are complex.   I’ve listened to more testimony from our elected officials and I believe (truly hope) that my clients understand more about mortgages than most of them do.  Here’s a thought: before they can present a bill impacting mortgages, families who depend on a mortgage to purchase a home, livelihoods of mortgage originators; our Congress men and women should have to pass the mortgage competency exam.   Why do we want someone making laws they don’t understand the full impact of? 

I believe if this bill becomes law, it will actually harm consumers.  The cost of mortgages may increase.  There will be fewer mortgage options and fewer lenders willing to provide them.  Competiton is good.   Home owners should have the right to make choices about their financial future.

Here is a link to sign an online petition against HR 3915.  If you’re a mortgage originator, real estate agent, appraiser or home owner; I encourage you to contact the House Committee of Financial Services to tell them about your positive experiences with your mortgage before Tuesday. 


  1. wow didnt know that it will prevent a loan officer to cross state lines…and that huge bond!

  2. I predict the bill will pass. It may not pass in its current form, but it will pass.

    It doesn’t matter how many signatures are on the petition.

    YSPs have been abused for too long. Where was the brokerage industry when that was going on? Where was the petition to stop the abuse of YSPs?

    Net tangible benefit can and should be enacted. This could easily be proved, documented, and agreed-upon between the LO and the homeowner. The government will give us case studies or a list of good, tangible reasons to refi.

    The government is trying to keep brokers from refi-churning their clients over and over again for the sole purpose of earning a fee. Again, where was the broker community when this was going on?

    Answer to both questions: Nowhere.

    If brokers and LOs don’t like what the government is doing, then the broker community must regulate itself, which would get the government off its back.

    Instead, brokers should expect more federal and state laws just like this.

    This is only the beginning.

  3. Mortgage financing, a national database will help curb unscrupulous LOs from crossing state lines…hopefully.

  4. Jillayne, this will impact more than brokers; the “net tangible benefit” will also hit the bankers too. The government should not be involved with approving when a borrower can or cannot refi. If this portion of the bill is put into law, most lenders, bankers, and brokers will be too hesitant to refinance anyone unless there is a significant drop in the interest rate because of the risk of being sued.

    Often times, a refinance may take place for other reasons besides rate reduction. It is a home owners right to to use their home equity as they see fit; not Congress.

  5. We could probably come up with a list of 100 good reasons for a refi where the borrower received a net tangible benefit. I don’t believe this would limit people from refinancing.

  6. It won’t prevent consumers from wanting to refi; it will prevent many loan originators from providing a refinance out of fear of being sued somewhere down the road.

    HR 3915 will allow the borrower to sue the LO if, for example, their payments go up from taxes or an assessment. Even though I advise my clients that property taxes may and will adjust; one can come back on me and say I never explained it.

    Or, I have a past client right now who wants to refinance. His current rate is not quite 1% below the current 30 year fixed; who will determine whether or not this is a good refinance for this person? The government? I don’t think so.

    There are so many other factors beyond rate for a mortgage transaction.

    I have another client where I provided a no income/no employment verified loan (prior to the melt down). She has assets. Her husband had lost his battle to cancer months ago… regulations like this would stop someone like her from having a mortgage and buying a home.

    These regulations are going to far more than hurt lenders and possibly end the mortgage broker industry; many well deserving Americans will not be able to buy homes or keep them if they need to refinance out of their ARMs.

    This is a panic “Witch Hunt” mentality by our elected officials.

  7. We are teaching a continuing ed class right now on the informed consent doctrine. Mostly, this class attracts brokers but after the first of the year when you need another 2 CE classes, consider taking this class. My buz partner Kevin wrote and teaches the class. What you’re talking about in this last comment would be taken care of when LOs become required to give informed consent (like doctors, for example.)

    Barney Frank is right on the edge of that.

  8. I don’t think the bill will put brokers out of business.

    If YSPs go away, the method of how brokers/LOs are compensated will change, that’s all.

    This is an exciting, historical time to be in the business.

  9. Jill is obviously not in the business or maybe just being smart. Banks are immune from the law, so it will put us out of business. This is not exciting. This is like telling a restaurant they can’t make money on fish only on beef.

    The reality is this bill is designed to do one thing and one thing only, put mortgage brokers out of business. Eliminating YSP means that everyone will have to charge points. If the banks can continue to charge YSP that is an unfair advantage even the best broker cannot get around. This law is insidious and its sole intention is to regulate mortgage brokers out of existence.

    This should scare everyone. If Congress succeeds in regulating us out of existence, who is next: used car sales men, insurance agents, contractors? This is the height of opportunism and hubris and the industry must speak with one voice against this and employ our borrowers as allies against this law.
    Here is how I saw it…


  10. Hi there Mike,

    I’ve been in the business for 25 years.

    YSP has been abused for many years.

    If it goes away, the method in which brokers/LOs will be compensated will transform…it will be different, that’s all, but broker compensation will still exist. Consumers and politicians want broker compensation to be TRANSPARENT.

    The clever, savy mortgage brokers will not only survive, they will see this as an opportunity to capture their local market.

    Banks will never have to disclose their yield. Brokers are wasting their time complaining.

    Become a correspondent lender or go work for a bank if you don’t want to disclose your yield.

  11. Jillayne, your response is too simple and not that easy.

    There are not that many correspondent lenders around…I can only think of a couple, including Mortgage Master, in our area. I know of a correspondent lender who has decided to become a mortgage broker as to not have the risk of having an unbought loan in their lines because of program changes or the bank trying to find any reason it toss it back once they’ve purchased the loan. Banks who are pulling out of wholesale lending impact us as well.

    It will be interesting to see how correspondent lenders weather this storm.

    Maybe all the LOs who don’t want to disclose their YSP should go work for you.

    BTW, there’s more to this bill than the YSP. With refinances, points and closing costs can no longer be financed…your thoughts on that?

  12. There are many medium to large sized mortgage brokers around the state with correspondent lines of credit.

    “BTW, there’s more to this bill than the YSP. With refinances, points and closing costs can no longer be financed…your thoughts on that?”

    Well, I’m not seeing that part of the bill. What section should I go back and review?


  13. Jillayne, I keep waiting for your post at RCG regarding 3915 that you said you’re going to do…review the high cost section of the bill…and the bill has been modified since this post. I have not had a chance to absorb the current version. The bill is also very vague and leaves too much to interpretation.

    I am not for any bill that takes away the freedom of Americans to make their own financial decisions.

    National licensing of ALL originators I’m for. The Government should stay out of underwriting and mandating what programs are acceptable for American home owners.

  14. Alright, I’ll do it, but I probably won’t post it until after I’m home from school tomorrow (friday) night.

  15. “No financing of closing costs”….this is only for High Cost loans under the HOEPA section of the TILA.

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