Brokers to Fight Expanded YSP Disclosures

The GFE portion of HUD’s latest attempt to reform the Real Estate Settlement and Procedures Act “will do nothing to simplify the [lending] process” and cause many borrowers to choose more costly loans, Marc Savitt, president-elect of the National Association of Mortgage Brokers, told MortgageDaily.com.

“It’s more confusing than any other document I’ve ever seen,” he said. “It will only complicate the process.”

NAMB will strongly oppose this portion of HUD’s RESPA reform rule when it is published in the Federal Register and becomes open to public comment, including getting members to write protest letters, he vowed.

“If HUD does not respond, then we will take other options,” he said, declining to be more specific.

“The biggest problem we have is the disclosure of the yield spread premium and the way they’re showing it,” he explained. “The purpose of RESPA reform is to simplify the process, to make it easier for consumers to understand the real estate transaction. But it’s no longer simple.”

The YSP has long been one of NAMB’s key issues in its opposition to some aspects of mortgage disclosure rules.

HUD only complicated the GFE issue when it expanded to four pages from a single page this portion of the RESPA rule that discusses settlement charges, Savitt explained when comparing HUD’s latest proposal with the 2004 proposal, which was withdrawn by HUD in the face of industry opposition. Little was changed in the discussion and explanation of GFEs, including yield-spread premiums, except that it was made four times longer, he maintained.

Savitt, who is president of The Mortgage Center, in Martinsville, W. Va., said he has seen only the four-page GFE portion of HUD’s latest RESPA reform rule.

“We have not seen the rest of the proposal,” he said.

“We have a lot of friends not only at HUD but also in Congress,” he responded when asked about his source.

He said he was the only one within NAMB who has seen it.

The point may be moot, however, if House Democrats are successful in their passage of H.R. 3915, The Mortgage Reform and Anti-Predatory Lending Act of 2007, which would eliminate the payment of YSPs.

NAMB expressed opposition to that bill, noting in a statement, “The indirect compensation mortgage brokers receive from lenders is a defendable fee that actually lowers closing costs to consumers.”

In testimony before the House’s Committee on Financial Services last week, Savitt reportedly said, “A ban only on the broker’s compensation will destroy small business mortgage originators in this country, resulting in fewer market participants, less competition and ultimately higher prices for consumers.”

HUD is within days of transmitting its proposed new RESPA rule to the Office of Management and Budget for review, MortgageDaily.com was told by HUD spokesman Brian Sullivan, who questioned whether Savitt had seen or obtained any portion of HUD’s actual proposal, noting that he himself has not seen it.

“Then, within 90 days, OMB will give it back to us and we’ll make any modifications they think are necessary,” he said, “and then we’ll propose it to the world, including to the National Association of Mortgage Brokers,” with its publication in the Federal Register. This will then open it up to comment from persons and groups in the mortgage industry, from consumers, and from all others.

“That’s the time for everybody to weigh in in a meaningful way. And based on those comments we will modify the proposed rule and get it in some state where it will become final,” Sullivan said, pointing out, “We can’t make any changes without the benefit of public comment after we publish the rule.”

This comment period, which he anticipates will start in early 2008, will probably be for 90 days, as it was in 2004, he said.

Savitt said his and NAMB’s main opposition to the GFE portion of the RESPA proposal is how YSPs paid to brokers are disclosed to borrowers — first as points to be paid in addition to the interest rate and then as a credit to the borrower. At the same time, he added, lenders and banks do not have to disclose “what they make on the back end of a loan.”

Thus, he explained, a lender or bank can show a loan as 6.25 percent with zero points but a broker would have to show 6.25 percent plus 2 points if that is what he is being paid, and then further down show a 2 point credit to the borrower, making both loans identical in terms of interest rate.

“There’s no reason to do it this way. It’s confusing to borrowers; they think those 2 points will be added to the interest rate,” he said pointing to a study by the Federal Trade Commission which showed that this led some borrowers to choose a more expensive loan.

The FTC study revealed that only 72 percent or fewer of borrowers whose loan cost information included such broker compensation disclosure chose the least expensive loan. As many as 27 percent said they would choose the loan that was the most expensive loan if they had been shopping for a loan.

Savitt said that NAMB has suggested that the HUD-1 Settlement Statement be used in determining the GFE under RESPA.