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.
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.
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.