As we all know the FED rule, after the recent Appellate Court ruling, goes into effect today. I have been significantly involved in this industry, working for NAMB and the Mortgage Broker for over 26 years. I spent many years, along with countless others, to turn back the first HUD proposed rule, be an industry advocate and have some grasp of the DC process. I have read the initial judge’s opinion which, in my opinion, is atrocious. Every claim made by NAIHP and NAMB was acknowledged and then dismissed in favor of the FED for the greater good.
The fact that the Appellate Court upheld the judge’s decision speaks volumes about our industry. The past mortgage meltdown which devastated the entire financial industry happened on the FED’s watch and they did nothing to stop any of it. NAMB made repeated efforts over the past 2 decades to get someone’s attention about the lack of enforcement of the rules and regulations to no avail. I was honored to testify before congress many times on behalf of NAMB and if you look at those transcripts you will find our constant request for enforcement of the existing laws and thus, purging the crooks out of our industry. Obviously NAMB was ignored despite the fact we had nearly 38,000 members at the time and controlled well over 50% of the market. Nothing was done and instead a number of consumer oriented groups, regulators and members of congress worked on trying to pass even more regulation for the industry. I have no idea of their rational to proceed down that path when the current regulations were not being enforced. The FED was going to make someone pay and the mortgage brokers were the target. Our industry has been blamed unfairly for the entire mortgage meltdown, has become very small in numbers and has few resources. In other words, we were a very soft target ready to be skewered.
Unintended consequences - In my legislative years I learned a great deal about the thought process of regulators and the consumer advocacy groups. Our industry has long fought the battle of unintended consequences and how regulatory efforts have always significantly hurt the consumer. Unfortunately, here is reality, there are no unintended consequences which is why our argument rarely, if ever, gets any traction. Behind closed doors, all of the above mentioned will tell you that there is a significant segment of consumers who are incapable of making their own financial decisions. They think their job is to protect this populace by not allowing them access to credit. If you take this position, it all makes perfect sense. I believe the same principle of “unintended consequences” is the foundation of the FED rule. In the political circles of DC there are a large number of individuals, entities, and members of congress who think Mortgage Brokers are just a little above “pond scum” and want them gone.
They lump the entire mortgage industry with the bad subprime brokers, who burned and pillaged everyone they could, with those of us who do and have always done business the right way. The irreparable damage that is being done to this industry by the FED rule is actually an “intended consequence” disguised as something needed for the greater good of the consumer. Again, behind closed doors, I have heard a significant number of state and federal regulators describe the happiest day of their life would be that day when they woke up to find out there were no more Mortgage Brokers left. The mortgage meltdown and the Dodd/Frank nightmare gives the FED, and state regulators, a tremendous opportunity to accomplish that goal. Again, if you look at all the above from a position of intended consequence everything falls into place and makes perfect sense. Will they eliminate what is left of our industry? No, and I say that for the following reasons. The first is this rule obviously favors big banks and retail lenders.
They consider this the biggest windfall in the last 25 years and an opportunity to push out all competition and completely dominate the market. This level of greed and arrogance will result in a higher cost to the consumer, as monopolies inevitably do. However, this will provide Mortgage Brokers an opportunity to capture business using the wholesale models of smaller lending entities such as regional banks and smaller lenders with significantly lower cost to the borrower. The second reason is our resiliency. Mortgage Brokers will find a way to stay in business, be profitable and take advantage of the big lenders mentality. We always have and no doubt always will. Also, I believe that the situation described above, fueled by greed, will benefit brokers. When Mortgage Brokers continue to operate profitably with lower cost to the borrower, the big lenders and banks will realize they are losing business and they need to be in the game again. The wholesale model is simple. The lender invests a certain amount of money in support resources for Mortgage Brokers and thus doubling their gains with brokered fundings.
I am sure that both NAIHP and NAMB will keep fighting to turn this rule around. I have known Marc Savitt for many years and he is a man of integrity who is passionate about protecting our industry. Mike Anderson has also devoted a huge amount of time for the cause. Personally I don’t think the broker industry will prevail in this court action and if they do it will be months or more down the road. The right action is to accept reality for now and concentrate on how to operate profitably and sustain your business. I am not suggesting anyone give up the fight but rather, survive the fight, regardless of the outcome and move forward. I have heard this is the end of the Mortgage Brokers several times over the last 20 years but we have always found a way to survive, be profitable and serve our customers’ needs with great product and hands on service. I don’t think it will be any different this time.
Neill Fendly, CMC, Past NAMB President, Past NAMB Broker of the Year, Past NAMB Legislative Chair
Will they eliminate what is left of our industry?