Franks calls for ban
House Financial Services Committee Chairman Congressman Barney Frank of Massachusetts indicated Wednesday, during the conference committee meeting on Financial Reform, yield spread premiums (YSP), would be banned. Such a prohibition would eliminate zero point and no cost mortgages for Americans that deal with mortgage brokers or bankers.
Most home buyers in this country elect zero point mortgages to save on up front or out of pocket costs when purchasing or refinancing real estate. This ban will cause millions of potential homebuyers and current homeowners to be unable to finance homes, because of the increased costs. The greatest impact will be felt by low and moderate income borrowers, especially in minority communities.
Mr. Frank’s misdirected beliefs come from the days when some mortgage originators overcharged borrowers for loans that were developed and made available by large federally regulated institutions, such as Countrywide, Ameriquest, Washington Mutual Federal Savings Bank, Fannie Mae and Freddie Mac.
Current standards
Mortgage brokers and their originators, are now the most heavily regulated part of the mortgage financing industry. Although, previously state regulated, they now follow a strict uniform national standard known as the SAFE Act. Some standards include, 20 hours of pre-education, 8 hours of continuing education, background investigations, fingerprinting, registration in a national database and the passing of both national and state tests.
Bank employees, who perform the exact same function, are exempt and will only be required to register with the national database. The banks themselves will be unaffected by a YSP ban, leaving them with little competition and a clear path to continue what could be the largest increase in mortgage costs ever in the history of this country.
Chairman Frank will continue to allow banks to pay and/or receive service release premiums (SRP), which are the exact equivalent of yield spread premiums (YSP). It’s also important to note, brokers have disclosed their YSP compensation to consumers since 1992, as mandated by HUD. However, banks and lenders have no such disclosure requirement, which makes brokers the victims of their own disclosure.
A call to action
We urge everyone in any part of the real estate and/or mortgage industry, along with consumers, consumer protection groups, trade organizations and unions to contact their Senators or Representatives and demand that Chairman Frank remove any reference to yield spread premiums (YSP), or any cap on originator compensation, from the final reform bill. Competition and industry already provide for such safeguards. Congress needs to allow America to grow its economy and real estate industry without further over regulation.
