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Old phone system equals new mortgages!

If you are old enough, you will remember a time of no cell phone or oh my, no Twitter! In 1996, Congress passed the Telecommunications Act that cleared the way for multiple phone companies and the lowering of prices for all. It led to cheaper home phones and subsequently cheap cell phone prices.

Now, let’s zoom to March 31, 2011 and you need a mortgage (heck of a transition , huh!?).

You have an open market choice of going to a mortgage broker, banker, credit union of bank. All of them compete hard for your loan, fighting to give you the best deal. Now, April Fools is the next day.

Here’s the joke.

The banks on April 1 can do whatever they want to give you the best deal. Everyone else MUST, according to the Federal Reserve, charge you a fixed price for each loan, no negotiation, no ability to discount, zero, nothing.

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So, if my mortgage brokerage decides that it will make a gross margin of 1.5% over the wholesale price I can offer and a person calls me for a mortgage of $1,000,000, I must charge them $15,000 payable by the bank in a Service Release Premium/Yield Spred Premium (yes, they really are the same thing) or charge the borrower $15,000 as a broker/origination fee.

Under current rules, I would never charge someone that much for a loan.

But, if that person goes to the bank, the bank can do what they want. And guess what? The major banks with a wink and a nod can set what “the rate” will be because competition has been eliminated.

It’s pre-1984 ATT all over again. It may be 4 major banks but they are acting as one.

No other industry in America has a limit on what they can make. Can you imagine owning a hardware store and only being allowed to charge $1.00 gross margin on every screwdriver but Lowes and Home Depot undercut you and you can’t match it? Yes, right.

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How an this be stopped? Well, from discussions I have had with attorneys, legislators, industry professionals, the answer is that the Feds have overstepped their bounds of limiting an industry’s income.

Contact your federal legislator and tell them what the Fed is doing.

Otherwise, turn in your cell phone and shut down your Twitter account and plug in your home phone.

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Written By

Realty Reality! That describes Fred, a sharp witted and outspoken realist for the mortgage and real estate world who has appeared on CNBC and NPR's Marketplace along with being quoted in the New York Times, The Wall Street Journal and other media outlets. Fred is the CEO of U S Spaces, Inc/Arrivva (a real estate brokerage firm in PA, NJ, DE and CA) and U S Loans Mortgage Inc (mortgage brokerage in PA, CA, FL and VA), and serves on the Board of Directors and is the Federal Legislative Director for the UpFront Mortgage Brokers. Fred is also the co-creator of real estate startup Rentscoper.com, a mathematically driven rental search engine. See everything Fred at fredglick.com.

20 Comments

20 Comments

  1. Lani Rosales

    December 17, 2010 at 11:51 am

    Great comment from facebook.com/agentgenius regarding this article:

    “This is more despicable behavior (and probably illegal favoritism) by the banks designed to eliminate competition. None of us likes competition, but it’s a healthy component of a healthy and vibrant economy! America is sick, and we need to get this patient healthy again!” -Art Vuilleumier

  2. Agent for Movoto

    December 17, 2010 at 12:48 pm

    yeah, like the banks really need to be coddled. ugh.

  3. Lani Rosales

    December 18, 2010 at 11:15 pm

    Fred, this is really astounding, what is their reason for imposing this??

  4. Fred Glick

    December 18, 2010 at 11:59 pm

    Because they said so. We have no other answer. Speculation? The Fed is helping the banks to manipulate the mortgage industry to kill their competition so that they will have enough money to pay the Fed back all the money they owe, keep the banks stabler because of higher income and just need to prop up the banking system in general.

    If you’d like to play journalist, I can give you people to call at the Fed and others who favor and oppose this.

    • Lani Rosales

      December 19, 2010 at 1:20 am

      I’m SO not doubting you, I just can’t understand why they would do this. I mean, I get the mechanics of it, but it’s so ridiculously short sighted, how could anyone who has more than a third grade education think this is a means of stabilization?

  5. Nadina Cole-Potter

    December 20, 2010 at 12:06 am

    We have the best legislators money can buy. And look for more of the same in the next Congress. No wonder elections are so viciously thought. Think of the spoils and privileges that come after even one term in Congress. Ugh!

  6. Nadina Cole-Potter

    December 20, 2010 at 12:07 am

    Freudian slip! I meant “viciously fought …”

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