Yet Another Reason Congress Isn't Helping Homeowners

I must sound like a broken record. Yet, every week more legislation is in the works that is a detriment to homeowners. I used this metaphor in a previous post, but you wouldn't trust a lawyer to perform your brain surgery, so why are we trusting lawyers and lawmakers to dictate mortgage guidelines? It's ridiculous! First the HVCC, now this week it is HR 1728.

HR 1728 is a housing reform bill intended to protect borrowers and renters. I agree with the verbiage that protects renters from being stiffed by landlords who are in foreclosure. However, a portion of the bill would prevent yield spread premiums (YSP) from being paid to banks and brokers. This is a fee that lenders pay to a broker or bank for a rate above the par rate. Think of it this way, if you are not paying origination points, the mortgage professional is receiving compensation in the form of a YSP. I don't know anyone that works for free! Lenders provide YSP incentives to generate business, which can then be passed on to borrowers in the form of lower rates or to avoid paying origination points. HR 1728 will change that. Here are just a few problems with the bill:

• Big lenders (Countrywide, Chase, Bank of America, etc.) can still make a "gain on sale" which is just another term for YSP.
• Lobbyists for these major lenders, who also happen to be major TARP recipients, are among the biggest supports of the Congress representatives voting on the bill
• You will have to pay points to obtain a rate from any broker (IE, no points loans will no longer exist)
• No points/No closing costs loans will no longer be available through brokers because the YSP is used to pay the closing costs on these loans.
• Smaller companies will be put out of business. Less competition will generally lead to higher rates.
• Vague language in the bill leaves portions open for interpretation - yet the very people responsible for managing available funds don't know where the money is going!

The argument can be made that some banks and brokers abuse YSPs. However, there are preventative measures in place with lenders that prevent borrowers from issuing particularly high cost mortgage in this regard. The negative implications of the bill far outweigh the positive changes that may result. For example, about 80-85% of the borrowers I speak with on a daily basis request a "no points" mortgage. That will no longer be an option if HR 1728 passes. If you want to protect your rights as a borrower and retain the right to request the type of mortgage that suits you best, please contact your local Senator.

If this bill passes many small companies, like ours, could be out of business. That means no more Tuesdays Tip! Help me help you!

Make it a great day!