Pipeline

Means to an End

Mortgage brokers may be flustered by new rules limiting how much they can make on loans, but the restrictions might be a positive for lenders overall.

A new report from Moody's Investors Service said the Federal Reserve's rules on loan officer compensation are likely to reduce mortgage defaults.

The rules, which take effect April 1, essentially ban yield-spread premiums, which are paid to brokers or loan officers who make loans with higher interest rates, often in exchange for lower up-front costs.

"We expect rates to be lower as a result of the elimination of commercially motivated overcharges," Moody's analyst Gregory Bessermann wrote in the report issued Tuesday. "Lower rates should result in lower payments, which would translate, all else being equal, into lower defaults, a credit positive."

Defaults also could fall as a result of borrowers being placed in loans they are more likely to afford. "We believe the prohibition of steering will enhance customers' ability to pick products that are more suited to them," the report said. "Previously, loan originators could encourage a borrower to take a mortgage with unfavorable terms or unnecessarily risky features in order to bolster their own compensation."

Additionally, Bessermann said he expects lenders to pay origination fees in the form of commissions rather than having borrowers pay them in points and fees, as the new rules no longer permit both the borrower and the lender to be charged an origination fee for the same loan.

One thing that remains unclear is what happens when securitized loans originated after the rules go into effect fail to comply with the regulations. Moody's said it is looking into whether potential penalties could lead to losses to holders of mortgage-backed securities.

Industry players have bemoaned that the rule changes, combined with provisions in the Dodd-Frank Act that also limit compensation, will drastically alter how brokers and loan officers are paid, and how much they can ultimately make.

Needs a Home

Jack Loop wants to help prospective homebuyers save up for a home, but he's having a hard time finding a bank to assist him.

The New Canaan, Conn., entrepreneur developed the HomeCard in 1995 as a savings tool for consumers to help them stash away money to be used toward down payments or repairs on a home. Several previous attempts to launch the card have been unsuccessful, but Loop is hoping this time around will be different.

"Consumers need more help than ever getting on the path toward buying a home," he said. "The key for us is finding the right bank to partner with us to bring this to market."

Depending on the bank partner, the HomeCard will be either a Visa or MasterCard branded card and will be offered as a debit or credit card.

Loop envisions consumers receiving up to 25% cash back on purchases that can be deposited into an interest-bearing savings account and used toward expenses related to a home purchase.

Though the cards won't be available until a bank partner is found, consumers can go to www.thehomecard.com to enroll in the program in advance.

Famous, Foreclosed

The head of the Philadelphia Housing Authority — the nation's fourth-largest such agency — took home more than a quarter of a million dollars last year but still had trouble paying his mortgage.

News reports in August said that Carl Greene, the agency's executive director, was facing foreclosure on his $615,000 condominium after he had fallen several months behind on payments. The mortgage was with Wells Fargo & Co., according to the reports.

On Aug. 19, Greene announced he was taking several weeks of leave to get his financial situation in order and that he had paid his mortgage through October.

"My lack of attention to my personal financial dealings is a failure on my part," Greene said in a press release. "I want to assure the citizens of Philadelphia as well as the employees and residents of PHA that the problems I have created for myself personally have not affected my stewardship of the housing authority. We continue to be a dynamic organization and a leader in the development and management of affordable housing."

The press release added that the stress of the job "left him mentally and physically exhausted."

The PHA houses about 81,000 people in the city of Philadelphia with a budget of nearly $350 million.

Greene's housing woes have been overshadowed recently by other legal problems.

On Aug. 26 he was suspended from his position with pay while the board investigates sexual harassment claims that were settled in secret. Meanwhile, the Department of Housing and Urban Development is examining the agency's books, The Philadelphia Inquirer reported.

Greene countered with a lawsuit on Tuesday claiming the PHA's board of directors had effectively terminated him without due process. He is seeking damages in excess of $75,000, plus attorney's fees and costs.

According to reports, Greene's salary last year was around $306,000 and he received a $44,000 bonus. He has two years left on his contract as executive director.