financial reform bill « MBSQuoteline Blog

Below is a collection of articles, news, and announcements associated with our industry.

Posts Tagged ‘financial reform bill’

BlogTalkRadio Podcast, June 28, 2010

Wednesday, June 30th, 2010

Mortgage companies and mortgage originators will be significantly affected by what Congress does in the final Financial Reform bill. The bill made it through the House and Senate Conference Committee last Friday. Glen Corso, Executive Director of the Community Mortgage Banking Project, returned to the show today to describe what the bill now looks like. He focused on the two provision directly affecting the mortgage industry: Risk Retention and Loan Officer Compensation.

The current Risk Retention provision actually improved in the conference committee. There is still a requirement for originators to retain 5% of the risk on the loans they originate and sell. This would be devastating for the industry, except for the fact they the bill exempts almost all of the loans being made today. The bill says that the requirement to retain risk does not apply to government guaranteed loans (FHA, VA, and USDA) and all other loans “well underwritten”. Well underwritten loans are loans that are fully documented and have reasonable ratios, are not negative amortization loans or loans with large payment adjustments possible. Most Fannie and Freddie qualifying loans would meet this definition. Glen believes the bill will allow an allocation of the retained risk between the various parties in the origination chain.

The Loan Officer Compensation provision did not change in the conference. It will prohibit originators from being paid commission based on the terms of a loan. In addition, it prohibits a borrower from being charged origination fees while on the same loan the originator receives compensation from an investor. This provision will likely eliminate priced in overage and some yield spread premium. It will not prohibit an originator from benefiting from overage resulting from market price improvements subsequent to the time the rate and points are quoted to the borrower.

It was nice to hear that Glen does not believe that either of these provisions will be effective for 18 to 20 months. The conference committee bill must still be passed by the House and the Senate and signed by the President before it is final.

Click PLAY to listen to the podcast of this week’s BlogTalkRadio/Lykken on Lending with Dave Lykken and MBSQuoteline’s Joe Farr :

Listen to internet radio with David Lykken on Blog Talk Radio

MBSQuoteline supplies the essential market information necessary for effective decision making by Originators when assisting borrowers during the loan origination process, and for secondary marketing departments while managing pipelines. For additional information or to sign up for a free 2-week trial subscription, visit www.MBSQuoteline.com or call (800) 627-1107.

Tune in every Monday at 1:00pm(et) for up-to-the-minute information on interest rates, loan programs and “hot” industry news related to the mortgage industry. Dial: (646) 716-4972 or log in at: www.blogtalkradio.com/lykken-on-lending

There will not be a BlogTalkRadio Lykken on Lending program next Monday, July 5 in observance of U.S. Independence Day.

Tags: Community Mortgage Banking Project, David Lykken, Fannie Mae, FHLMC, financial reform bill, FNMA, Freddie Mac, Glen Corso, House and Senate Conference Committee, Joe Farr, loan officer compensation, loan originators, Lykken-on-Lending, MBSQuoteline, mortgage industry, mortgage rates, podcast, risk retention, yield spread premium
Posted in BlogTalkRadio Podcasts | Comments Off

BlogTalkRadio Podcast – June 21, 2010

Wednesday, June 23rd, 2010

Wouldn’t it be nice if Congress would extend the “close-by” deadline for those trying to get the Homebuyer Tax Credit? Sure it would. Wouldn’t it be even nicer if they did it now, June 21^st, before we all break our backs trying to get the thousands of transactions closed by June 30^th? Any anxiety out there right now?

Glen Corso, Executive Director of The Community Mortgage Banking Project and an industry advocate, brought to the BlogTalkRadio show today an up to the minute status report on HR 4213, the bill being considered by the Senate which, if passed, will extend the “close-by” deadline to qualify to receive the Homebuyer Tax Credit from June 30^th to September 30^th. According to Glen, there is very little controversy on whether or not to extend the deadline. Most are in favor of it. The rest of the bill, though, includes significant controversy and because of it, might not pass any time soon. As a result, this is not a time to relax. Push to close all the purchase loans that you can before the existing June 30^thdeadline.

Glen also provided a shocking update from the House and Senate Conference Committee working on the compromise language to be included in the Financial Reform bill. This is the bill which includes, among many other things, a requirement for mortgage originators to retain risk on 5% of the loans they originate and sell to investors. The House version of the bill included no carve outs from its requirement. The Senate version carved out from its requirement loans which were “well underwritten”. The Senate carve out – as defined in the bill and if implemented – would exempt most of the loans being made today from the 5% risk retention requirement. It has been anticipated that in the Conference Committee, the Senate version of the risk retention provision would survive. Glen surprised us when he told us that earlier in the morning the House conferees pushed for a carve out, but of only government guaranteed loans. Government guaranteed loans included FHA, VA, and Rural Development loans, but not Fannie Mae and Freddie Mac type loans. Lets hope the Senators win this negotiation.

Click PLAY to listen to the podcast of this week’s BlogTalkRadio/Lykken on Lending with Dave Lykken and MBSQuoteline’s Joe Farr :

Listen to internet radio with David Lykken on Blog Talk Radio

Tags: BlogTalkRadio, Community Mortgage Banking Project, David Lykken, financial reform bill, Glen Corso, Government guaranteed loans, H.R. 4213, Homebuyer Tax Credit, House and Senate Conference Committee, Joe Farr, MBSQuoteline, mortgage industry, mortgage loans, mortgage market, mortgage prices, podcast, risk retention requirement, well underwritten loans
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In The News: Loan Officer Compensation and Senate Bill 3217

Friday, May 21st, 2010

It is being reported that Senate Bill 3217 Restoring American Financial Stability will soon pass out of the Senate. There are many things in this bill which will effect the mortgage industry. In an earlier blog post I discussed the likely impact of the “Skin in the Game” provisions of this bill. In this post, I will discuss the provisions in this bill which will restrict Loan Officer compensation.

Glen Corso, Executive Director of The Community Mortgage Banking Project, discussed on the BlogTalkRadio/Lykken-on-Lending show on Monday that the amendment to Senate Bill 3217 which, among other things, prohibits loan originators from receiving compensation based on the terms of the loan. He explained that the amendment was introduced late Tuesday evening May 11th and was passed on Wednesday morning May 12^th, giving himself and other industry advocates no chance to weigh in on the amendment. The intent of the amendment is to remove any incentive for an originator to charge more in origination fees to a borrower or to give a borrower a higher mortgage rate than the basic rate and price as established by his or her origination company. So this amendment essentially prohibits companies from paying loan officers a portion of any overage and prohibits wholesale lenders from paying brokers more yield spread premium for a higher rate on a loan.

Ironically, as Glen reported, the amendment also prohibits a company from paying an originator less commission based on the terms of the loan. This means that an originator may no longer be able to give up part of his or her commission to get a deal. This certainly seems like it might be an unintended consequence, but apparently not. Those promoting the amendment in the Senate understood that this practice, this consumer benefit, may end.

The concept of restricting overage and yield spread premiums is not new. The proposed changes to Reg Z, which were announced over six months ago, include similar prohibitions. The House version of a financial reform bill also contains prohibitions on paying originators based on the terms of the loan. John Courson, President & CEO of the Mortgage Bankers Association, told the Texas Mortgage Bankers on Tuesday that in his opinion we are likely in a “brave new world” as it relates to compensating loan originators. He does not see much chance to change the loan officer and loan broker compensation provisions of this act before it is passed into law.

On a positive note, this same amendment includes a provision which may offset some of the pain from prohibiting overage. The amendment says that compensation to a lender from the sale of a loan in the secondary market is allowed. This is obviously a good thing, but what it may also do is allow a lender to share gains from intraday market movement with an originator. I know most large lenders will not do this, but some small lenders may. Don’t think of the extra money as overage. Think of it as benefit from intraday market movement. If you quote the rate sheet price in the morning and the borrower agrees to it there is no overage. But, if before you lock it with the investor in the afternoon prices have improved you have extra money. This is not overage. It is market movement. MBSQuoteline is great at helping you capture improved prices due to intraday market movement. It is also great at documenting this should the payment ever be challenged.

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MBSQuoteline supplies the essential market information necessary for effective decision making by Originators when assisting borrowers during the loan origination process, and for secondary marketing departments while managing pipelines. For additional information or to sign up for a free 2-week trial subscription, visit www.MBSQuoteline.com or call (800) 627-1107.

Tags: BlogTalkRadio, Community Mortgage Banking Project, financial reform bill, Glen Corso, Joe Farr, John Courson, loan broker compensation, loan officer compensation, loan officers, loan originators, lock/float, locking systems, Lykken-on-Lending, MBSQuoteline, mortgage backed securities, Mortgage Bankers Association, mortgage brokers, mortgage industry, mortgage loans, mortgage prices, mortgage rates, rate sheet, Regulation Z, Restoring American Financial Stability Act of 2010, secondary market, Senate bill S3217, Texas Mortgage Bankers, yield spread premium
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In The News: “Skin in the Game” – Risk Retention Amendment to Senate Bill 3217

Friday, May 21st, 2010

Senate Bill 3217 Restoring American Financial Stability is working its way through the Senate and is expected to be passed in the coming weeks. Certain provisions of this bill will have a significant impact on the mortgage industry.

As you may recall, the Senate Bill 3217, as originally proposed, included a provision which would have required 5% of the risk on all loans originated be retained by the originator upon sale to investors. The provision was not clear as to which entity or entities in the origination chain would be required to retain the risk. It was not clear whether the risk that was to be retained would be an ownership interest in the loan or reserves supported by cash. It was also not clear how long the originator would have been required to retain the risk. The original provisions would have been devastating to the mortgage industry. The 5% risk retention would have forced many mortgage originators from the business and would have driven mortgage rates much higher. After significant industry efforts, this provision was amended last week.

The amendment, as passed by the Senate, does very little to answer these questions, but what it does do is exempt Qualifying Mortgage Loans from the requirement to retain risk. Qualifying Mortgage Loans are defined as loans that are originated using thorough underwriting procedures and which have terms that are very basic. Think today’s Fannie, Freddie and FHA/VA loans. Think jumbo loans originated under guidelines similar to Fannie and Freddie guidelines. The vast majority of loans originated in today’s market will meet the Qualified Mortgage Loans definition. This is a good thing.

There are still issues with the risk retention provisions of Senate Bill 3217, even as amended. Because the exemption to risk retention only applies to Qualified Mortgage Loans, there will be little room for innovation or for new mortgage loan programs in the future. This is probably the desired result from the lawmakers’ perspective. New programs will have to meet the Qualified Mortgage Loans definition or the interest rates for the new programs will have to be much higher to pay for the 5% risk retention. Many of the special programs created over the last decade were simply not good for the borrower and were too risky for the investor. Senate Bill 3217 will make it unlikely that anything resembling those programs will ever come back. But many of the special programs, when used for the right borrower, were perfectly sound programs. As an example, stated income programs made sense when used for high-earning self-employed professionals with low LTVs. Even pick-a-pay loans made sense for the right borrowers.

Senate Bill 3217 is not yet law. It must first be passed by the full Senate and then go through a reconciliation process with the House version of the financial reform bill before it will be final. The risk retention provisions of Senate Bill 3217, as amended and if passed, will have a significant effect on the mortgage industry going forward. As amended, though, we can at least expect to have an industry to affect.

Tags: Fannie Mae, FHA, financial reform bill, FNMA, Freddie Mac, interest rates, investors, Joe Farr, jumbo loans, loan originators, LTVs, MBSQuoteline, mortgage industry, mortgage market, mortgage originators, mortgage prices, mortgage rates, new mortgage loan programs, pick-a-pay loans, Qualifying Mortgage Loans, Restoring American Financial Stability Act of 2010, risk retention, risk retention amendment, Senate bill S3217, U.S. House of Representatives, U.S. Senate, VA loans
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BlogTalkRadio Podcast – May 17, 2010

Thursday, May 20th, 2010

Senate Bill 3217 Restoring American Financial Stability was the focus of discussion on the show Monday, particularly two recently passed amendments which are of great interest to the mortgage banking industry. The amendments deal with risk retention and loan officer compensation. One is good for the industry and the other is not. Glen Corso, Executive Director of The Community Mortgage Banking Project, joined the show to bring a first hand understanding of the amendments and their status.

The amendment that is good for the mortgage industry deals with the risk retention provisions of the original bill. The original bill would have required mortgage originators to retain “skin in the game”. It would have required originators to retain 5% of the risk on all the loans they originated and sold to investors. The amendment exempts from the 5% risk retention requirement certain mortgage loans which meet the definition of Qualified Mortgage Loans. Since 90% or more of today’s loans will meet the definition of Qualified Mortgage Loan, the amendment significantly reduces the number of loans on which originators will be required to retain risk.

The amendment that is not good for the mortgage industry restricts how loan originators are to be compensated. Glen Corso explained that this amendment was introduced Tuesday evening last week and passed on Wednesday morning, giving Glen and other industry advocates little time to discuss its drawbacks with Senators. The amendment restricts paying commission based on the terms of the loan, which likely means no overage or yield spread premium.

The Senate Bill is not yet law. It must first be passed by the full Senate and then go through a reconciliation with the House version of a financial reform bill before it will be final.

We will discuss the risk retention amendment and the loan officer compensation amendment in further detail in separate posts later this week.

Click PLAY to listen to the podcast of this week’s BlogTalkRadio/Lykken on Lending with Dave Lykken and MBSQuoteline’s Joe Farr :