HR 3915: Why Federally-Chartered Banks Get The Pass
By: Brian Brady,
San Diego Mortgage Broker,
Post Archive,
RSS FeedPosted: Tuesday, November 13th, 2007, 12:57 pm MST
Category: Lending
Big banks have a HUGE advantage over mortgage brokerage firms; they have the money. Federally-chartered banks also are regulated differently than mortgage brokers; they are overseen by the Office of Thrift Supervision, a successor regulator to the Federal Home Loan Bank Board. Federally-chartered banks also subscribe to FDIC insurance which imposes another layer of oversight to them. In the interest of simplification, the OTS regulates banking activity while the FDIC monitors the bank’s investments.
Big banks have a lot to lose if they have a rogue originator among their ranks. That’s not to say it doesn’t happen; rogue originators infest every business model, including the big banks. What is apparent, however, is that the big banks have greater systems in place to supervise the actions of their employees than do mortgage brokerage and correspondent lending firms. They also have more stake in the origination process- the authority to borrow and lend money with the legislated blanket of a government guarantee (FDIC insurance).
Banks have exploited this unfair advantage, too. They systematically engaged in a scheme to inflate profits by using mortgage brokers and correspondent lenders to do the dirty work for them. Internal policies at the big banks limit how much “overage” (the bank term for yield spread premium) a bank-employed originator can charge under the guise of “responsible lending”. Their wholesale business channels were able to “bribe” the brokers to originate higher rate product with the temptation of obscene yield spread premiums. They removed themselves from the “dirty retail” work to claim plausible deniability when the shit hit the fan. Today, we have a feces-covered fan. The mortgage brokers have dirty, smelly hands and the big bankers are emerging from the washroom looking like a smartly starched altar boy.
Big banks are always going to have an unfair advantage with regulators because they know the golden rule of finance. A watered-down version of HR 3915 will eventually become law. The political pressures of an election year make it virtually impossible for ambitious politicians to ignore a chance to enable the adolescent nature of America. They will launch this conspiracy against the consumer and the mortgage brokers will have to jump through a few more hoops to stay in business.
What then for the future of mortgage brokerage firms and their originators? Originator licensing, as evil as it is, will most likely materialize. The frog and scorpion relationship between mortgage brokers and big banks will become more pronounced with licensing.
Mortgage brokers offer the best chance for unbiased advice in a loan transaction. If you (an originator for a mortgage brokerage) are conducting your business in a meaningful and ethical way, this eventual law won’t affect you. When this whole thing dies down, the frogs will continue to swim freely with (hopefully) a more wary disposition to the scorpions.
In the end, the way we serve the consumer is the most important thing. HR 3915 is an anti-consumer bill because it limits consumer choices. Screaming about how the scorpions are trying to eliminate the frogs will not engender sympathy from the legislators. A consistent approach, rather, about the inequities this bill will foist upon the CONSUMER will eventually make headlines.
Change is a coming. We can keep swimming with the aimless frogs or find a scorpion that allows us to act like one.
More on HR 3915:
- Daily Kos on HR 3915: Mortgage Industry Set To
- HR 3915: Why Federally-Chartered Banks Get The Pass
- HR 3915: Open Letter to Senator Dodd from a Veteran Mortgage Originator
- HR 3915- Legislating to Armageddon
- H.R. 3915 Mortgage Reform Bill Passes Committee with Important Changes
- HR 3915: Anti-Consumer Bank Protection Act of 2007
- HR 3915: Exploring the Minds of the Enablers
- HR 3915 Is Dangerous
- HR 3915: Mortgage Reform and Anti-Predatory Lending Act of 2007
5 comments
5 Comments so far
[...] It’s also happens to be a an efficiency and lead generation tool for mortgage pro’s willing to embrace transparent philosophies. RateSpeeds ability to auto-price and sort through the myriad of lenders they’re approved with stands to save a mortgage pro’s inordinate amounts of time and related cost. RateSpeed, at it’s core, stands to alter how mortgages are sold through compensation reformation. By showing consumers exactly how mortgage professionals make money, reform will (is) being demanded, evidenced by HR 3915. (Nod to Brian Brady for his copious amount of research and opinion on the issue). I know many mortgage professionals who practice this level of transparency in their day to day business, but there are too many who don’t, and they’ve screwed it up for the rest of us. Some will say it’s too confusing to the consumer, others just want to continue the practice of personally enriching themselves through consumer ignorance. Anyway, how RateSpeed specifically works isn’t what this post is about, so I’ll move on. [...]
As I’ve told many a client.. forget how friendly they appear.. the Banks always win.. That’s why they have the money..
“In the end, the way we serve the consumer is the most important thing. HR 3915 is an anti-consumer bill because it limits consumer choices.”
Hey, I am all for eliminating my competition…lol. I am not worried about the law passing, I just hope they don’t screw the consumer too badly in the process.
Well done….
The way the banks come out on this reminds me of politics.
HR 3915 passed in the house today, notice the party line in voting: http://www.ipagio.com/hr-3915-house-vote.php