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If the new TILA rule is implemented as written, it would be illegal for a broker to offer the same interest rate and fees as a competitor if it resulted in receiving income paid by the borrower and the lender. This would be the case even though the consumer received the exact same terms in both cases.
Mortgage brokers who seek sources of capital that are less expensive than their competition deserve to earn a greater profit for their efforts, just as a cabinet-maker who finds less-expensive lumber or a grocer who discovers lower-cost food can earn higher profits. In the long run, mortgage consumers must compare three things from various companies to shop effectively:
The loan amount
The interest rate
The closing costs
In almost every shopping scenario, consumers must choose between more-expensive and less-expensive products. Providing simple tools to compare options is a more effective way of protecting them. Restricting brokers' ability to earn an income, as proposed changes to TILA attempt to do, likely doesn't contribute to a better marketplace for consumers. Encouraging consumers to shop does.
While the Federal Reserve has stated concerns that creditors' payments to mortgage brokers aren't transparent to consumers and could incentivize brokers to sell loans with higher interest rates — particularly to less-sophisticated consumers — using such a stance as a framework for changes to TILA is unworkable. Because higher-interest-rate loans are more valuable, investors will pay more for them.
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Higher-margin and lower-margin mortgage products exist. The consumer's job is to compare and choose. The government's job is to assist in that. By commenting on proposed changes to TILA — and about the ongoing trend toward drowning consumers in paperwork — brokers can promote consumers' ability to shop and their own ability to earn a fair income.
Robert M. Steenrod is president of Professional Mortgage Inc. He has been providing lending services in Washington state since 1982. Having worked for a number of regional and national lenders, Steenrod has been president of Professional Mortgage Inc. since 1996. His expertise includes Federal Housing Administration and Veterans Affairs financing, condominium and project financing, multifamily and commercial lending, project evaluation, and financial analysis. Reach him at (206) 870-5051 or email@example.com.
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