April 1st. April 1st is April Fool's Day. It's also one of my dearest friend's birthday.
But this year, it's significant in another way as well. April 1st, 2011 is the day Mortgage Brokers will have to decide how they will be compensated - 100% by the borrower, or 100% from the Lender. One or the other. Brokers will not be able to "straddle the fence" and receive compensation both ways anymore, as has been the case for quite some time now.
Brokers are going to lose the ability to tailor the loan to suit the borrower. If compensation is to be lender paid, the broker must pick one flat premium to charge on all loans, no matter the situation. No broker credit allowed. And because the lender premium will have to pay for all of the broker compensation and lender fees, that means a higher rate must be charged by the broker to cover the costs. This means higher interest rates have to be quoted to borrower. Who benefits the most from this ? The large banks do, that's who.
Now that the only borrower who can get a loan is a borrower with a good score, all lenders, banks and brokers are competing with interest rates, not loan programs like a few years ago. And if everyone is competing on the pricing of interest rates, it would appear as if brokers are really about to lose...
Sounds like a really bad situation for borrowers and brokers. It's difficult enough getting a transaction to work as things stand today. This new legislation is bound to make things worse, it seems.
But will it really ?
My first impression was yes, it's bad. Real bad. But after thinking about it a bit, reading some lender guidelines on the subject, and watching video from my friends at TBWS.com I am not so sure.
Of the course the "big banks" would love to crush their smaller, more elusive competition (smaller regional banks and mortgage brokers), and with the help of Congress, it appears the new financial reform legislation is geared towards serving that purpose. Brokers and smaller lenders have long shared a "scratch my back and I'll scratch yours"relationship in the past, and the new law will probably strengthen the mutual benefit affair between the two...
The one-way or another broker compensation legislation is definitely in place to cut out the niche brokers and small banks, and to give an even larger slice of the mortgage loan pie to large lending institutions.
But, I do not think it is actually going to be that bad. Sure, brokers and banks will have to make adjustments to comply, but they will. The everyday, hard working industry professionals will figure out the legislation, the competition, and the way to get things done - despite the constantly changing obstacles that are ever present.
Hasn't it always been that way ?