Please pardon my lack of excitement, this thing kind of scares me. Consider this, our nations 4 largest banks just came off a quarter where they all pitched "perfect games." In other words there was not a single day in the entire quarter where our banks had a losing day. Now according to the professional prognosticators that I've read, these results are a veritable impossibility. It's true though, in the middle of the largest housing downturn, at a time when foreclosure filings JUST hit their highest number since we've kept records, our banks made out like bandits. How is that possible? Because I don't have all the answers and because I'm limited to the length of this article I can only tell you what I know and how it pertains to the mortgage lenders.
So as I write this, Congress is considering limiting the Mortgage Brokers YSP or Yield Spread Premium. It's the belief of congress that a loan officers ability to earn income by charging the consumer a higher interest rate will ultimately and exclusively lead to lender compensation abuse. Truth be told, those funds could also have been used to pay down the consumers fixed fees and give them more flexibility in the transaction. Here's my point though, so stick with me - Through RESPA's new and improved Good Faith Estimate, YSP is already the sole ownership of the consumer. So a congressional ban of YSP will only take that money out of the consumer's pocket. It does not get rid of any overage it only takes it out of the hands of the consumer.
In this little scenario, the money will simply STAY with the banks and therefore help the banks bottom line. Remember those impossible perfect games. You see, Congress' attack on the mortgage broker's compensation has a residual effect in the real estate banking industry. It has invigorated our largest banks to take away the SRP from the Banking Loan Officer. Now just like congress with YSP, our nation's banks are taking away SRP, in an attempt to limit unchecked lender abuse through higher compensation by charging higher interest rates. Once again, what they fail to tell you is that this compensation still exists, it's just not getting filtered down to the loan officer or consumer.
The banks are simply damming the flow of money higher up stream. Higher to a place that benefits the banks bottom line. Listen, both YSP and SRP have the ability to be abused and need to be put in check, but we have to have an honest conversation that has honest intended results. I'm all for helping out the consumer but let's have our actions reflect our words. Frankly I'm sick of hearing about greedy lenders that screwed our housing market. Lenders sold a product that was given to them by banks and Wall Street. Lenders didn't falsely bundle these loans with AAA ratings and sell them for huge profits.
Oh, and your friendly neighborhood lender doesn't have the lobbying power to impose their will on policy changes. It's not a surprise that existing and future legislative and policy change have benefited the big banks; it's just surprising how very few people have noticed the road we've taken to get here. What do we know, hell maybe they need fat bottom lines. I mean let's face it - someone's going to eventually have to pay for their worthless portfolio of second mortgages. Those billions are going to eventually come home to roost, right!? And it's not going to look good! Have you heard the term "too big to bail?"
Brian & Frank
Thinkbigworksmall.com (TBWS) was founded in 2007 by a group of highly successful real estate and mortgage industry entrepreneurs. Born in the most battered market in the real estate and mortgage industrys history, Thinkbigworksmall.com was conceived after decades of observing how the most successful professionals always seem to work smarter not harder. Frank & Brian can be reached at firstname.lastname@example.org
Does it come as a surprise to anyone that all our legislative and policy changes, which are done under the heading of "consumer protection?, have amounted to higher fees to the consumer and larger profits for our Nations largest banks? Does anyone see the absurd irony created through policy shifts with disclosures and transactional protocol that have pushed out most real estate transactions beyond 60 days!? Is it only Frank and I who think drawn out transactions that cost more money is not an improvement to our fragile real estate market and economy can tolerate? With that said, here comes Finance Reform.