THE NEW FINANCIAL REFORM BILL AND ITS IMPACT ON BORROWERS AND MORTGAGE LENDERS
The financial regulatory reform that is taking effect will have an impact on everyone including borrowers and mortgage lenders in many different ways. The Bill is 2319 pages long, and will cover many areas that will affect everyone in the months to come. Not everything is covered in our synopsis of the bill, but this will give you an overview on changes you can expect to see over the next couple years.
This bill is to aid with the changes that are being made to mortgages. This will help consumers to avoid high fees, and do away with bad loan terms. Prepayment penalties will also no longer be allowed.
Before a borrower will be able to get a loan, mortgage brokers and lenders will be required to determine if the borrower can actually pay back the loan by checking all borrowers income, and assets prior to approving the loan. The stricter verification process will make it more difficult for self –employed individuals or those who earn their salaries from commission to obtain a loan or qualify for a loan. On the other hand, it will give borrowers more leverage on contesting foreclosures if they are approved for a loan they cannot afford.
The bill will also prevent lenders from offering mortgage brokers bonuses or incentives for giving unfavorable loan terms to borrowers (like increased interest rates). This will have an effect on mortgage brokers (who are the middle men) by eliminating YSP (Yield Spread premiums-this is where the mortgage broker gets the loan at a lower interest rate, and sells the loan at a higher rate to the borrower, keeping the profits) With this being eliminated, they will lose one of the ways they make their money since the mortgage brokers make money 2 different ways, by YSP, and origination fees (% of loan size, usually fixed rate). Since the YSP’s will be eliminated, the only other way they will be able to make their money will be by increasing origination fees. This may mean borrowers will be avoiding the use of mortgage brokers more, and going directly to lenders.
With mortgages becoming less profitable to the lenders, it will also become harder for a consumer to obtain a loan, (lenders are already starting to require higher down payments). Anyone denied a loan or credit, will be eligible to get a free credit report through one of the major credit unions.
As far as bank bailouts go, the new bill should decrease the amount of money spent by the taxpayer if the bank goes out of business. If a financial institute fails, the FDIC (Federal Deposit Insurance Corp) will borrow from treasury to pay the costs of liquidation and get the money back by selling the financial institutions assets. Also, if the financial institute fails, the FDIC will also have the ability to take back any compensation that has been given to the senior executives for 2 years prior to the institutions failure.
The bill will offer financial literacy study to teach Americans about fees, liens, savings and loans. It will also require that all disclosures are to be made to investors prior to them investing any money into the institute. The bill is not 100% perfected, but it should help the economy. The legislations are not expected to go into effect for another 12-14 months.
Thanks for the recap of the bill, it’s really interesting to see what they’ve created to prevent the economic fallout we had back in 2008 from happening again. Hopefully the bill will actually improve our financial system and make it less fallible. Do you think we’ll see immediate improvements when this goes into effect?
No anything like this will take time to trickle down before we results, but its definitely a step in the right direction.
I am a loan officer for a regional correspondent bank, and have worked for two of the largest Banks in this country as a loan officer as well. I have been working as a loan officer for the past 4 year. The industry chagned the UW criteria and started to regulate loans and require the borrower to fully docuemnt credit, income, and assets for the entire time I have been working as a loan officer. They are not instituting anything new. What they are doing is making changes to ensure that the larger banks, such as BOFA and Wells Fargo are able to get an even larger piece of the pie. The smaller regional banks will not be able to compete. You will get the same interest rate at BOFA or Wells Fargo as you would at a smaller regional bank( the regional bank may even be lower). The differnce is the larger banks will keep 3% for themselves and split 1% with the originator. As an example for a $100K loan with an interest rate of 4.625%, a larger bank will keep 3K as profit and split the other 1% or $1K with the loan originator 50/50. The smaller regional correspondent bank will give the same loan for 4.625% and make a total of $2500; splitting that with the originator 60/40. Makes no mistake….this bill was passed in part due to the lobbying of the larger banks. This bill will ensure that there is no competion and everone will have to go directly to them for the loans….all the while thier profits will go up!!!
I thought we lived in America and enjoyed a FREE ENTERPRISE system. Since when does our government place a value on the work of its citizens? Where will it end? Will they fix the price of pizza’s and gas? Next they will come to you and say that your job that you are currently getting paid $60K a year to perform, is only worth $40K and you will have to take a pay cut.
We are giving the government tooo much power!!
What you are completely ignorant to is… What YSP is.
Brokers get a Wholesale rates that they sell at Retail.
YSP is used to pay all or part of the compensation to the broker. And if you knew anything about RESPA you would know that YSP is given to the borrower as a credit to reduce the costs. They are way behind the 8 Ball.
RESPA resolved this with the new Good Faith Estimate.
and Big Banks like BofA and Wells want everyone to come to them, so they can monopolize the lending industry. Great, take away consumer choice and give them shitty service on top of it. If you are gonna write an article about an industry interview someone who does it day to day,not someone sitting behind a desk with an opinion. Back seat driver!
Weve done alot of research on this article, if you have a different opinion, please submit your point of view or arguement, without any profanity or sarcasm, we would be happy to post it for you. Please submit at your convenience.