Dennis' Mortgage Blog

Yesterday the federal judges removed a stay issued last Thursday night that had prevented the implementation of the Federal Reserve Board's new Reg Z, or Truth In Lending, or TILA (pick a name, any name) regulations.  The new regulations mandate how mortgage brokers can be paid for their work on residential mortgage transactions and who can pay them.

Two industry groups were plaintiffs with motions to the court to toss the new regulations out stating that the Fed was overstepping its authority, that the new regulations would irreparably harm small businesses, that the Fed had insufficient evidence that the new new regulations were needed, and that the new regulations because they apply to mortgage brokers but not direct lenders would harm consumers and lead to higher rates and costs.  While not deciding whether the plaintiffs motions have any merit, the Court of Appeals panel determined that while the plaintiffs motion works its way through the courts then a stay would not be in place.

As a result effective with the opening of business this morning the new rules are in effect.  What are the new rules?  The most simple aspect is that mortgage originators can either be paid by the borrower or by the lender, but not both.  This eliminates the ability for me to offer a range of rates from say 4.75% at one point, 4.875 at one-half point or 5.00% at no points.  Take out the middle option from now on.

A myriad of regulations are now in effect that determine how originators can be paid by their companies, no more commission only sales people from now on a complicated set of salary, bonuses, etc will have to be in effect. 

Further, because of the rate v compensation scales that have to be established the overall winner in the mortgage industry will be....you guessed it, not you the borrower, or us the originator, but the lenders.  Specifically the Big Four (Wells, BofA, Chase and Citi) who will see increased market share as the new regulations put smaller brokers, and possibly lenders, out of business and who will be able to profit from market variances that will accumulate more Yield Spread Premium and Service Release Premium overages onto their income and balance sheets.

The regulations are typical over-reaction from a government agency on a problem that does not exist, or has already been solved.  Rather than a simple disclosure form that is already used in California by mortgage brokers (the Mortgage Loan Disclosure Statement) that would address any concerns the Fed has, the bureaucrats feel it necessary to flex their muscle under their belief that more government is good for everyone.

The net impact on Stratis Financial of the new regulations could be very positive as reduced competition will allow the company to grow and fill the void by those who may leave the industry.  Despite the potential positive aspect for Stratis however, we are firmly against these new regulations due to the overall impact on the industry and especially future borrowers who will end up paying higher costs and rates for mortgages.

In a year that has seen incredibly over-reaching acts from Washington, this is just one more regulation that hinders business and ultimately costs you the consumer more money under the intention of "protecting the consumer."

Mortgage rates continue to remain low for the time being.  Call or email Dennis today to determine your purchasing power for a new home loan or monthly savings from a refinance.  Direct dial 562-472-1118