For anyone who actually believes mortgage brokers caused the financial crisis in this country, I have a great deal on Lehman Brothers stock for you. Several years ago, while being reprimanded during a Congressional hearing for putting “unsuspecting” home owners into bad loans, I responded with a now common response, “Mortgage brokers never developed any loan program, set guidelines for any program, nor did we underwrite or approve any loan.”
Regardless of the numerous studies conducted by respected Universities and the GAO, which clearly vindicated brokers, the blame game continues. From the minute the financial markets began to collapse, you couldn’t watch any news program without hearing how mortgage brokers created all the problems. Some of those pointing fingers used anecdotal evidence and outright fabrications to create this elaborate smokescreen. If you are a certain consumer group with a three initial acronym, you know I am talking about you. The most outrageous accusations came from the big four, who saw an opportunity to mask some of their own failures. As a direct result of this well orchestrated blame campaign, Congress and the regulators jumped at the opportunity to punish the brokers, all in the name of consumer protection.
Let’s look at some of those “protections” and how they helped consumers: HVCC (now AppraiserIndependence): In 2007, former New York Attorney General Andrew Cuomo began investigating “some of the country’s largest banks” for appraisal fraud. Right out of the gate, he nailed Washington Mutual Federal Savings Bank (WaMu) and an unlicensed Appraisal Management Company, eappraiseit. According to Cuomo, he had emails showing that WaMu pressured the AMC to over value properties. Cuomo also discovered a serious conflict of interest, in that banks had a financial interest in many of the AMC’s. Armed with substantial evidence, Cuomo approached the GSE’s and threatened to include them in the investigation. Hoping to avoid legal problems, the GSE’s agreed to cooperate under Cuomo’s now famous and economically destructive, Home Valuation Code of Conduct (HVCC).
According to Cuomo, HVCC would prevent valuation fraud, eliminate influence on appraisers and protect consumers. However, instead of placing restrictions against the banks, who were the subject of his investigation, all the restrictions were placed against mortgage brokers. When asked why brokers were being singled out, the AG’s office stated, “…it was recommended by the banks, the Appraisal Institute and a few consumer groups. …” The HVCC guidelines have now been in place for over two years. According to MARI and other respected research firms, valuation fraud has increased over 50 percent, the quality of appraisals have gone down substantially, home values continue to fall, the average borrower now pays approximately $700 more per transaction and tens of thousands of appraisers have gone out of business. Note to Gov. Cuomo: Thanks for proving it was not the brokers!
Loan Originator Compensation: In August of 2009, the Federal Reserve Board proposed a new rule to protect consumers from certain unfair and deceptive practices. The Fed claimed these practices caused consumers to pay excessive fees. A heated comment period followed the proposed rule, which was ultimately finalized in August of 2010, after Dodd-Frank had already addressed the issue. As non-creditors, mortgage brokers were once again singled out as the “bad actors,” mainly because they receive Yield Spread Premiums (YSP). The Fed declared YSP unfair and deceptive practices. Under this rule, brokers are prohibited from receiving compensation from both the borrower and lender, or giving discounts to consumers. NAIHP filed suit to stop the rule, but was unsuccessful for reasons stated in my last article. However, the lawsuit did produce an unexpected victory. In the Fed’s answer to our suit, they admitted bank or creditor YSP was exactly the same as broker YSP. Both banks and brokers controlled their compensation and used it in the exact same manner. So, here is the question: If the Fed acknowledged bank and broker YSP was the same, why are all the restrictions placed against the brokers, who only have a 10 percent market share? Why are the banks, who enjoy a 90 percent market share and who invented all the harmful programs, free to continue what the Fed calls unfair and deceptive practices? The answer obviously has nothing to do with consumer protection. Brokers were viewed as the defenseless target, which already had a negative image created by banks and consumer groups, with the support of the media. Some have asked why the consumer groups targeted the brokers. For the answer, check out who provides some of their financial support.
The Fed Rule has now been in place for two months. Originators are earning less, causing many to exit the industry. As of this writing, broker market share is down to 6.9 percent. The Fed claimed this would not happen, despite warnings from the SBA’s Office of Advocacy and several industry trade groups. Most importantly, consumers are paying more per transaction and it can not be blamed on the brokers. Unfortunately, HVCC and the Fed Rule needed to be implemented to vindicate brokers. The question is have the regulators learned their lesson? There is a saying in Washington, “perception is reality.” Although, mortgage brokers are not the cause of the mortgage meltdown or financial crisis, we are viewed that way. Brokers and originators must come together to change that image. Is it possible, absolutely? We have already started by supporting passage of the SAFE Act. Brokers and originators have gone from being called unregulated and rogue, to the most regulated and educated in the industry.
NAIHP and its coalition of industry professionals, are working hard to promote the true image of mortgage brokers, originators, appraisers and all other housing professionals. We have engaged the professional services of a public relations firm, who will assist us in this arena. However, our best hope of erasing the undeserved negative image is to build one of the country’s largest grass roots organizations. Please check out our website www.naihp.org and join us today. Become part of the solution.
Marc is the President of the National Association of Independent Housing Professionals. Previously, he served as the 2008-2009 President of the National Association of Mortgage Brokers. He also held the positions of NAMB’s President-elect, Vice President, Director, Chairman and Founder of the Consumer Protection Committee and was awarded NAMB’s highest honor, Broker of the Year.