H.A. "Tony" Davis, president of the National Association of Mortgage Brokers, in an interview with The Mortgage Marketplace, criticized the new regulations issued under the Real Estate Settlement Procedures Act. Davis also is president of Preferred Mortgage Associates in Downers Grove, Ill.
MMP: What is the concern of mortgage brokers about the requirement that fees paid to them be separately disclosed?
Davis: Brokers aren't against disclosure. We're for disclosure that makes sense. Under the regulations, a borrower has to be told that a broker is receiving a percentage of what the lender is charging, even though it doesn't increase what the borrower is paying. A lender, on the other hand, does not have to tell the borrower that it will receive additional fees when it sells the mortgage on the secondary market. Thus, a borrower could use the additional information available to bargain down the rate the lender is charging on the assumption it can come out of the broker's fee. The borrower doesn't know about the additional fees available to the lender from the sale of the loan to the secondary market and can't use that information to bargain with the lender.
MMP: How did HUD come out this way?
Davis: HUD's reasoning has to do with the fact that they see the broker as a negotiator providing a separate service, the fees for which must be disclosed. In reality, we're intimately involved in a secondary market transaction where all the actors are trying to get the loan ready to be sold. The interest and points paid by the borrower cover the activities of brokers and lenders and how we divide them up shouldn't matter. HUD, I believe, does not have a strong understanding of how the secondary market operates. Eighty-five percent of loans involving brokers are eventually sold on the secondary market.
MMP: What will be the impact on the consumer?
Davis: I think it will confuse them and, perhaps, cause them to shy away from a source of assistance whose competitive position is based on whether it can deliver loans at the best price possible.
MMP: What will be the impact on brokers?
Davis: I think we'll be able to survive the disclosure situation. We're marketing people and we're on the street and know how the system works.
MMP: What do you think of permitting real estate brokers to use computerized loan origination systems with a single lender and unlimited fees?
Davis: I see the value of CLOs, but I don't think you can deliver good-quality paper into the secondary market with them yet. Whatever your system, you need good mortgage professionals to underwrite the loans. Unless a real estate broker knows a lot about the mortgage business, it could be a disaster. I think we need more study about how CLOs will affect the delivery system. I'm surprised Fannie Mae and Freddie Mac haven't been more active on this issue.
MMP: What will the NAMB do about the regulations?
Davis: I think we need to work with Congress to define mortgage brokering. Brokers originate about half of all mortgages. HUD thinks all we do is run around locating mortgages. That's totally false nowadays. Brokers typically operate under strict state laws that place substantial responsibility on brokers and require much accountability.
MMP: What about the provisions that are more permissive about paying employees in a controlled business arrangement for referring business?
Davis: It's obvious you'll see a move in the direction of affiliating with real estate brokerages. We're an independent mortgage brokerage firm and I must analyze every aspect of these regulations before I decide which direction to go. We're a small business. We'll have to decide whether to join the real estate brokers or fight them. But I don't see how a borrower paying a real estate broker for use of a CLO benefits the consumer. The loans don't close by themselves. I'm very interested in seeing how the real estate brokers can operate in such a system and give value. I think it will just make the product more expensive.
MMP: While HUD disagreed with you all along on disclosure, it supported your views on CBAs and CLOs but was reversed by the White House. Were you part of those negotiations?
Davis: No. We have talked to individuals who attended discussions with White House staff and the only industry people in attendance were those favoring a reversal of the HUD position. We think this was extremely unfair and definitely not in the public interest.