WASHINGTON - The Department of Housing and Urban Development has been flooded with thousands of complaints from brokers that its mortgage reform plan would unfairly penalize them.
The National Association of Mortgage Brokers and individual firms spearheaded efforts to get their members and employees to complain about the changes to the Real Estate Settlement Procedures Act proposed in July. As of Wednesday the department had logged in 25,000 form letters, postcards, and other correspondence, and it still had more to process.
"The rule makes every effort to reduce the role of the mortgage broker to nothing more than an order taker," an employee of RKG Mortgage in Oklahoma City wrote. "This compromises the very service that has lead to mortgage brokers originating approximately 65% of all mortgages nationwide," the employee said in an illegibly signed letter that was identical to scores of others.
They took issue with the proposal's requirement that lenders disclose yield-spread premiums - alternative broker-fee arrangements in which the lender pays the fees up front and the borrower accepts a higher interest rate.
"Requiring a full disclosure of the mortgage broker's fees while not imposing a similar requirement on other originators creates a misleading impression that goes against brokers," wrote Michael T. Klett, a loan officer at First Wisconsin Mortgage Inc. in Madison. "The same rules should apply to all originators equally."
Julie Henderson with U.S. Lending Co. in Redding, Calif., wrote: "By artificially identifying a yield-spread premium as a 'lender payment to the borrower' via a government mandate, you expose just about every mortgage broker in America to class-action lawsuits. … I can just see a whole host of class-action plaintiffs asking, 'Where is my check from the lender?' "
Another broker asked, if HUD feels that these payments are inappropriate, why it does not simply ban them - then answered her own question.
"That would never occur, as the banking lobby would fight any effort to do so," wrote Stacy G. London, the executive vice president of Houston Capital Mortgage. "Those of us small mortgage brokerage owners, who are unable to match the big-dollar lobbying efforts of the banking industry, will be unfairly penalized. This appears to be an effort by the large banks to successfully carve out more market share at the expense of small-business people."
However, a high-profile consumer group said the disclosure requirements did not go far enough.
The National Community Reinvestment Coalition says it would like yield-spread premiums to be disclosed in a separate form, so that consumers can compare how much a broker is being paid against how much their interest rate is being raised or closing costs lowered, for example.
Though bankers' remarks were less impassioned, banks big and small took issue with most of the provisions - particularly on interest rate disclosures.
The proposal would update the good-faith estimate lenders must provide consumers to include several things: an interest rate quote in the form of the mortgage loan's note rate and annual percentage rate; notification of any prepayment penalties; subtotals of major categories of settlement costs; and a breakdown of lender and broker origination, title-insurance, and title-agent charges.
"My general comment is that this proposal has taken the current good-faith estimate, which is a fairly straightforward document, and made it into a cumbersome and complicated nightmare," wrote Cameron W. Clement, the vice president of compliance for the $1.2 billion-asset First Community Bank in Bluefield, Va.
The proposal would also create a "safe harbor" to encourage lenders to offer comprehensive packages bundling loan origination and almost all settlement services -- such as appraisals, pest inspections, and flood reviews.
Most bank trade groups wrote that they generally supported HUD's effort on that score but wanted to see some major changes before a final rule takes effect.
America's Community Bankers says it wants the department to hold off on revamping the good-faith estimate until after the market adjusts to the bundled services.
"We believe that making all of these changes at the same time would unnecessarily disrupt the mortgage market," wrote Charlotte M. Bahin, the trade group's director of regulatory affairs.
Most groups balked at the use of the word "guaranteed" to describe the bundled services.
"HUD should delete the word 'guaranteed' from the package, as it implies a lock on costs, contrary to the intent of the proposed regulation," wrote John C. Rasmus, the American Bankers Association's senior federal administrative counsel.
Steven Zeisel, the senior counsel for the Consumer Bankers Association, wrote that lenders should not have to guarantee interest rates, because they fluctuate until locked in by a borrower.
"If the interest rate [provision] does remain, however, we believe the disclosure should clearly state, in large type, easy to understand, that the rate is not guaranteed and that it is subject to change," he wrote.
Groups also want to see the window for how long a lender is expected to hold rates and terms open for a consumer reduced from the proposed 30 days to 10 or even five. They also want more time to implement any changes, with most groups calling for a two-year adjustment period.
