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   ARTICLE   |   From Scotsman Guide Residential Edition   |   October 2005

RESPA: Round Three

It’s simple, brokers: Pay attention to the RESPA fight or get smacked in the face

r_2005-10_Stein_spotImagine you’re at a boxing match. In one corner of the ring are the heavyweights, weighing in with huge sums of money and tremendous political knockout power: the five largest banks in the United States and U.S. Department of Housing and Urban Development (HUD) Secretary Alphonso Jackson. In the other corner are the contenders, weighing in with two-thirds of the mortgage market and a bevy of affiliate trade associations: the mortgage brokers.

Let there be no misunderstanding. Our industry is in for the fight of the century. The outcome will determine our livelihoods and the viability of our nation’s real estate economy, as the largest financial entities in the United States attempt to take control of the real estate market.

The third round of proposed Real Estate Settlement Procedures Act (RESPA) changes promises to be the final round of the bout. Both sides are better-prepared to face the opposition’s arguments. Are you ready to rumble?

Rounds one and two

The first blows in the RESPA fight were exchanged in 1992 with the statutory requirement to disclose yield spread. Shortly thereafter, HUD Secretary Henry Cisneros ruled that yield-spread premiums were legal.

The second round was more substantive. It began when HUD Secretary Mel Martinez dropped the proposed RESPA revision (without industry comment) the day before Congress went on recess. As the rule’s 60-day commentary period elapsed, no one was in the ring to cry foul. While mortgage brokers were reeling, appraisers, title companies and Realtors lobbied hard in opposition to Martinez’s proposed change.

Mortgage brokers got their big break in the second round with Martinez’s resignation from HUD to run for the U.S. Senate. In the end, the need to have Jackson confirmed gave mortgage brokers the second round. The RESPA revision was pulled off the table. Without the support of affiliates and Martinez’s move, however, mortgage brokers might never have made it out of round two.

Enter round three

Jackson has learned from his predecessors’ mistakes and, to his credit, has taken great pains to give all parties their say in the proposed rule. There are no guarantees, however, that this RESPA revision will be different from the previous one. Yield spread and guaranteed-mortgage packages (GMPs) are on the table for debate; those two items alone constitute much of the fight.

Under the proposed rule, a mortgage broker’s good-faith estimate inherently appears more expensive to the consumer than that of a bank. This is because of the manner by which yield-spread premiums would be disclosed. As shown on the newly proposed good-faith estimate, yield spread is reflected as a charged line item to the consumer; the offsetting credit is shown as “compensation for accepting a higher-than-market-rate loan.”

In 2004, a Federal Trade Commission report reached multiple conclusions about broker-compensation disclosures, including: 1. “The consumer confusion and mistaken loan choices arising from the compensation disclosure are likely to increase mortgage costs for many consumers”; and 2. “The bias against broker loans arising from the asymmetric compensation disclosure may harm competition in the mortgage market and result in higher mortgage costs for consumers.”

GMPs effectively force third-party service-providers to give larger institutions a price break if said provider expects to continue working with larger institutions. Appraisers, credit companies, title companies and escrow companies all acquiesce to the pricing structure created by the largest players in the market.

If that isn’t enough to make your mortgage-broker blood boil, consider this: A mortgage broker will not be able to attain the same pricing as the largest mortgage lenders on GMPs. In other words, the average mortgage broker will not be able to command the same volume discounts as the largest banks.

The role mortgage brokers enjoy in today’s market will be dramatically different if we lose this round. The proposed rule gives the five largest banks a stronghold on third-party services and an edge on disclosures. The competition brokers create in the marketplace will begin to erode.

Quite simply, RESPA reform signals the beginning of a “gas-station economy” and an end to the small businesses that support the nation’s competitive real estate market.

How to get involved

We cannot roll over on this issue. Collectively, mortgage brokers can be heard and stand a chance of winning the fight. Apathy within our ranks, however, places our industry at a substantial disadvantage from which we may be knocked out of the market. This raises the question: How do we fight back?

The arena is Washington, D.C. The National Association of Mortgage Brokers (NAMB), our industry’s voice, is our “man in the ring.” Although it is possible to exert political pressure individually by writing and calling your senator or representatives, political might takes cash and lots of it. My money is on NAMB.

If you haven’t joined NAMB or your state affiliate, there is no better reason to do so than the ongoing RESPA battle. Your donations to the National Association of Mortgage Brokers’ Political Action Campaign (NAMBPAC) are critical, and time is of the essence. (According to political-action-committee rules, only NAMB members can contribute to NAMBPAC).

The banks’ political coffers outweigh us 10 to one. Together with our affiliates, we can level the playing field and wage a historic “David and Goliath” battle. Mortgage brokers will only win with broad participation from our industry.

•  •  •

There are two things every mortgage broker needs to do:

  1. Talk to your affiliates and your Realtors. Let them know what RESPA means to them. 
  2. Join the fight. If every mortgage broker in the United States joined NAMB and contributed $250 to NAMBPAC, our message in Washington, D.C., would be overpowering.

Is your brokerage (and your livelihood) worth $250? Is it worth your time to educate the affiliates and your congressperson about RESPA? If you don’t spend the time and money to fight now, you may not have to worry about fighting tomorrow.

So I ask you again — are you ready to rumble? No? Can you say, “Do you want fries with that?”



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