Today's message is from guest blogger Todd K. Ballanger. He has 18 years of mortgage industry experience and is considered an industry pioneer in the area of capital market and credit market convergence.
You can check out his personal blog entitled: Borrow Smart Retire Rich by following this link.
Todd's Message:
Many of you know that I believe the Mortgage Industry is about 5 years behind the Securities Industry in REGULATION,and that gap is closing
quickly. Many of you have asked me about the banker -vs- broker impact of such regulation, where suitability and eligibility is heading for the mortgage industry, etc. You might want to be aware that a new Rule proposed by the Federal Reserve could dramatically affect your mortgage business
in the future, and how partners align with each other:
The Federal Reserve has a proposed Rule amending Regulation Z (73 Fed. Reg. 1,672 January 9, 2008)
The rule proposes several changes to underwriting and the mortgage industry which will brokers will feel directly.
1. The Federal Reserve is introducing a new category of loans which will trigger the abolishment of stated and no doc loans under any
circumstances.
2. The Federal Reserve recognizes that all originators receive a form of YSP or SRP but mortgage broker transactions will require that you
disclose before application what your income will be on the loan and this cannot change during the loan application.
3. The Federal Reserve wants the originator to determine that the borrower has the ability to repay the mortgage they are applying for - for
at least 7 years.
4. The Federal Reserve wants to put triggers in place similar to 1817 to have 3% and 5% caps before the loan would fall into the higher costs
loan.
The cut off for comments is 4/8/2008.
If you want to speak out, letters need to be mailed to:
Jennifer J. Johnson, Secretary
Board of Governors of the Federal Reserve System
20th Street and Constitution Avenue, NW
Washington, DC 20551
You may also submit comments, identified by Docket No. R-1305, by any of the
following methods:
Agency Web site: http://www.federalreserve.gov. Follow the instructions for submitting comments at
http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm.
Federal eRulemaking Portal: http://www.regulations.gov. Follow the instructions for submitting comments.
E-mail: regs.comments@federalreserve.gov. Include the docket number in the subject line of the message.
Not sure you can fight City Hall and win, but these issues will have a big
impact on your business if you are, or will continue to operate as a broker,
and not a banker in the future. With the momentum building for change, and the support of the Federal Reserve, brokers should give more consideration to aligning or partnering with banking institutions - at least have a Plan B.
Excerpt from Paulson's Speech Today:
Mortgage Origination Process
Another issue that needs attention is the mortgage origination process. Simply put, that process was broken. We are aggressively addressing the immediate problem, working to increase the availability of affordable mortgage financing, prevent avoidable foreclosures and to minimize the economic disruption of the housing correction. We concluded that it was also appropriate to put forward a proposal to address the policy issues arising from the current turmoil, to avoid a recurrence of recent events and to respond to the fact that a very large percentage of the problematic subprime mortgages originated in the past four years were originated by state-regulated entities.
Mortgage origination is one of the best case studies for the importance of regulatory structure. It raises the question of the proper balance between federal and state oversight, and requires a balancing of innovation, consumer choice and expanded access to credit with protecting consumers from predatory lending and deceptive or incomplete disclosure practices. I have reviewed and analyzed a number of ideas to deal with this process. We thought quite seriously about federal preemption of enforcement authority but concluded in this case it was best to focus on the immediately achievable.
We are recommending retaining state-level regulation of mortgage origination practices, but we are also recommending creating a new federal-level commission, the Mortgage Origination Commission. This commission, the MOC, would be led by a director appointed by the President. The Commission membership would include federal banking regulators and appropriate state representation. Legislation should either set forth or task this Commission to establish minimum standards which should include personal conduct and disciplinary history, minimum educational requirements, testing criteria and procedures, and appropriate license revocation standards.
In addition to standards, the MOC would provide important information to the marketplace about the strength of state's mortgage compliance standards. The MOC would evaluate, rate, and report on each state's adequacy for licensing and regulation of participants in the mortgage origination process. These evaluations would grade the overall adequacy of a state system by descriptive categories, indicating a system's strength or weakness. These evaluations could provide further information regarding whether mortgages originated in a state should be viewed cautiously before being securitized. This powerful Commission, coupled with the Federal Reserve's strong regulatory proposal regarding the HOEPA rules, should go a long way in preventing recent issues from recurring.
Posted by: Todd Ballenger | March 31, 2008 at 06:29 PM