The Future Of Mortgage Lending

With the recent great recession and housing problems created by irresponsible mortgage lending in the Unites States, all consumers will be impacted by new residential mortgage regulations starting in 2014.  Some impact can be positive and some can be negative.  From the signs of future policy just recently finalized (with disparity toward wholesale lending) it will limit a consumer’s options in a less competitive marketplace by steering toward those with deeper pockets and with a greater influence on policy makers.  I have personally commended the CFPB on their effort to listen to the industry with an open mind and greatly improve Dodd-Frank as written due to the negative impacts consumers would face as a result of initial written policy.  Recently, however, I am concerned that they are missing the vital data in the wholesale channel supported by facts and math.  My goal is to communicate these facts and math, while still holding onto the belief that the CFPB (Consumer Financial Protection Bureau) can correct the problems before or shortly after (through data collection) January 2014 so that consumers are not negatively impacted.

The recent final release to define the Qualified Mortgage (QM) as it pertains to calculating the 3% cap on points and fees clearly had influence by uninformed special interest groups or self-serving corporations which have inaccurately discredited the wholesale lending channel and “today’s” Mortgage Broker.  Wholesale is an important and vital channel for the consumer to access and compare residential mortgage rates, fees, and programs.  Understanding the NEW wholesale channel is as easy as looking at the math and facts about how loan origination and pricing actually works.  Regulatory and other consumer protections have already been in place for years, but all channels impacted consumers in prior years before these regulations existed equally through irresponsible programs.  For example, all loan originator compensation can be easily determined at origination per transaction with current compensation requirements (the creditors that employ the originator allegedly sold this myth to regulators that it is difficult for them to calculate which is untrue), but let's focus on some samples such as you'll find on this website.

The quality of loans originated have been the best in recorded history since 2009 and subprime lending has not existed for many years, yet new policies created are unfairly targeting one class of Mortgage Loan Originators (MLOs) and one method of loan origination – those that choose to broker a mortgage loan with a wholesale lender rather than using a warehouse line of credit with a creditor that employs them.  There is a huge confusion surrounding origination channels with regard to what a "Banker" or "Broker" actually is in our new residential lending environment.  There is also a lot of confusion about Service Release Premium (SRP) and Yield Spread Premium (YSP) and the current consumer protections already in place (originator compensation and anti-steering).  It must be clear on what this all means to the consumers we serve and this confusion MUST end.  After all, this is about THEM and not US.

What will the future of residential mortgage lending look like for consumers in the United States? 

Mortgage originators that operate accurately under the wholesale channel (as it pertains to the 3% cap) will still be able to operate, but the concern lies with consumers that are just over the $100,000 loan amount who miss exemptions and can be negatively impacted on choice and lack of credit available as a result of this miscalculation and how certain items are included.  The future consumer impact will depend on how much the Consumer Financial Protection Bureau (CFPB) actually understands about the primary mortgage market (the origination channels for consumers) and how they mold these final QM (Qualified Mortgage) rules under the Dodd-Frank Wall Street Reform and Consumer Protection Act.  In addition, how educated mortgage loan originators are can impact the future as well.  If the CFPB fails to understand the analytics facing each channel available to the consumer for mortgage origination (and what changes may negatively impact one over the other) the consumer will then lack choice which will lessen competition and increase fees and rates.

Obviously a lot of this also has to do with GSE reform (Government Sponsored Enterprises) Fannie Mae and Freddie Mac currently under government conservatorship among other things, but the Qualified Mortgage (QM) ruling will play a vital role as defined by the Consumer Financial Protection Bureau (CFPB).  We must make sure that consumer-protection regulation and policy actually protects consumers rather than creating unintended consequences through misunderstanding or lobbying special interest groups.

Please see our clarification on origination channels as well as how fees are inappropriately calculated under Consumer Choice tab above.  The rules were not created to limit competition and choice for consumers to access credit.  The rules were created to make sure there were not excessive points and fees charged that negatively impact consumers.   Please also see the proposed solution on consumer choice tab to easily make home loan shopping fair, competitive and transparent for consumer's and the small and medium sized businesses and individual originators that serve them.  Share your stories and statistics and check for updates.