Could New Mortgage Broker Rules Hurt Homebuyers?

mortgage brokers Could new mortgage regulations created to protect homebuyers under the Truth in Lending Act actually hurt more than it helps? The debate rages on, as mortgage brokers brace for what some argue will lead to less competition in the market, and therefore less credit for consumers. Charles Hugh Smith at our sister site, DailyFinance, explores the nuances of the new rules set to go into effect on April 1, to explain why the amendments may be shortsighted -- even harmful -- for prospective homebuyers.

New regulations limiting mortgage brokers' compensation go into effect on April 1, and they might prove to be appropriate for an April Fools' Day. Though aimed at unscrupulous mortgage brokers, it seems the regulations will instead hit the nation's struggling housing market.

The Federal Reserve Board says that its regulatory goal is to "protect mortgage borrowers from unfair, abusive, or deceptive lending practices that can arise from loan originator compensation practices." The basic idea is to prevent loan officers from steering borrowers into riskier types of loans or a higher-than-average interest rate to make a higher commission.

Search Homes for Sale See photos of homes for sale in your area and across the country on AOL Real Estate Officially titled "Loan Originator Compensation amendment to Regulation Z," The new rules apply to mortgage brokers and the companies that employ them, as well as mortgage loan officers employed by banks and other lenders.

Since most of us only deal with mortgage loan origination fees when we buy a home or refinance a mortgage, the average citizen will have a tough time sorting out the often-arcane issues at stake. But the bottom line is straightforward: the already-limited mortgage market is about to become more limited, as small mortgage brokers are essentially being shoved out of business. Call it "unintended consequences" or a cloaked plan to channel more of the mortgage business to the "too big to fail" big banks -- but regardless of the motivations, the rules may end up limiting consumer choice and make it harder for home buyers to get a loan.

While the stated goal of the new rules is laudable, those in the mortgage industry say it's a case of closing the barn door after the horse has bolted: the risky, subprime-type mortgages that were the root cause of the problem have already vanished from the mortgage market.

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For those of us, honest, brokers. We are paying a serious price for those that broke the rules and ethics of our industry. The sad part is that the consumer and the mortgage professional are being hurt. This rule should be rewritten to help us both. We provide consumers with hundreds of choices the big banks can't offer. Is you think B of A is looking out for you, your just getting duped. We used to sell the banks loans for the same rate you could get it direct, sometimes even cheaper and the independent loan officer and the bank co-existed In a symbiotic relationship that in the end benefitted the clients by giving them choice for the same price. Good Luck to the home buyer and so much for free market choice from your local broker.

One of a dying breed who's not yet ready to throw in the towel. Tell your congressman you like having options.

March 27 2011 at 5:22 PM Report abuse rate up rate down Reply

This was pushed by Bank of America or in our house its referred to as Bank of Satan and the other huge banks Chase and Wells Fargo. They want no competition. When there are only one or 2 big lenders for mtgs they can charge what they want. Trust me none of this is good for the consumer.

March 25 2011 at 11:10 PM Report abuse rate up rate down Reply

This new rule is ploy by the federal Govt. to make you think that they are doing everything to help the consumer, meanwhile this does nothing but cause more confusion in an already DEAD Housing Market. Banks weren't complaining when they had financing programs lending up to 125%. Now they won't take on any risk but they'll charge you 24.9% on your credit cards. The Gov't needs to MAN UP and figure out how all the Illegal Immigrants who don't pay income taxes, pay their fare share so the people who do pay income tax will get a reduction so they will start to spend the money they make instead of charging it and paying taxes for the people who don't pay. They also need to create jobs with the next revolution ENERGY and stop depending on these Arab countries for our fuel.

March 25 2011 at 3:51 PM Report abuse rate up rate down Reply

It's no secret who screwed up the housing market by making loans to borrowers who never should have qualified..BUT the same people are now putting the blame on every one the the mortgage broker, appraiser, etc...and guess who is making record profits.

March 25 2011 at 2:52 PM Report abuse +1 rate up rate down Reply

ooh, okay, stick it WAAAAY up my poop chute and just break it off, please... if it isn't the banks screwing me it's the feds... thanks a lot!

March 25 2011 at 2:22 PM Report abuse rate up rate down Reply

Lets start here ..... Show of hands ... Who here knows who "The Federal Reserve" is? The Federal Reserve is a privately owned bank. They are no more "Federal" than Federal Express! That's right folks, this country allows a privately owed bank to run our currency and economy. And why would government allow this you may ask? Who do you think we borrow all our money from?That's right, the FED! They control ALL our currency ... set interest rates, increase or decrease our inflation (depends on which suits their needs at the time). And, the Federal Reserve doesn't even have to answer to our goverment about anything they do!! The Federal Reserve knew what banks were doing when they were lending money out to anybody who had a heart beat! They could have stopped it, but they didn't. It was more money for them in the long run for them to let it happen. We can all say a BIG Thank You to Federal Reserve and our Goverment for allowing such a mess to happen!!

March 25 2011 at 2:18 PM Report abuse rate up rate down Reply
1 reply to mymustang's comment

Bernie Madoff is a guppy in the pond of Ponzie Schemes compared to what the government has done and is doing now. 13 trillion gone from the Fed Reserve and they refuse to answer where it went because "AS YOU SAY...THEY ARE A PRIVATE BANK AND DONT HAVE TO". They wanted the meltdown.......they wanted to have a reason to foreclose......Obama actually has talked about getting people away from home ownership in rural areas and move them into government housing projects in the larger cities. If you really want to try to understand what they are doing and why they are doing it look up social engineering..........It's a redistribution of wealth ok but not like the Obama supporters thought. We are headed for a mexican style economy in which a small group control and have all the wealth and the rest of the country is dirt poor begging for scraps.

March 25 2011 at 3:41 PM Report abuse rate up rate down Reply

Wait a minute. I thought the Gov't. was here to help us citizens? ....NOT Just another case of the Liberal /Socialists in Congress (Schumer,Pelosi Dodd) telling us they are here to protect us from these bad banks, while they are totally in bed with the banks.

March 25 2011 at 2:07 PM Report abuse rate up rate down Reply

This just looks like another case of the Federal Reserve consolidating power and doing favors for their Member Bank Buddies. I'm 100% sure the Federal Reserve knew they where screwing over the smaller firms with their new rules.

March 25 2011 at 2:01 PM Report abuse rate up rate down Reply

As an honest loan officer for for over 22 years I have seen many cycles in rates, home values and underwriting rules. I worked for large banks that manipulated the rates higher to show a profit to stock holders and then would lower the rates to create a larger pipeline of loans (volume) then raise them again to make a profit on the borrowers that were "floating" before locking their loan. I then became a mortgage broker so that I didn't have to hold an alegance to a bank and could shop a quality loan for the best rate for my client. Most brokers that I know worked for the best interest of their client. The bank works for the best interest of the stockholder. All of the new regulations put in place be Barney Frank and Christopher Dodd (Democrats) and their """Financial Reform Act""" are designed to kill the broker industry to appease the big banks that finance the Democratic candidates campaigns. All the while teling the public that it is being done to "protect the consumer". This is an organized SCAM against the consumer. So far these changes have forced appraisal costs to go up over $150 and the borrower is charged to pay for the appraisal to a Appraisal Management Company who will appraise the property lower so as to protect the bank's "loan to value". Brokers work with wholesale mortgage lenders that don't have a bank on every corner in every city and can offer rates at lower costs. The big banks charge the consumer more to pay for their brick and morter and the "order taker's" health/medical computer, pen, desk...etc. Ask any escrow agent, real estate agent, title officer or loan broker how well they think these changes have "helped".
Remember, the 10 most frightening words heard in America are, "I 'm with the government and I'm here to help you".

March 25 2011 at 1:28 PM Report abuse +2 rate up rate down Reply
2 replies to rmwhalen's comment

Great comment - thanks for sharing

March 25 2011 at 1:53 PM Report abuse rate up rate down Reply

Good post.........I have been an appraiser for 11 years nearly and got screwed by the HVCC. Appraisal Management Companies shop for the cheapest price appraiser which is often an improperly trained or poorly supervised appraiser trainee. This leaves them even more profit. As far as the value goes is what it is if the appraiser has done their job properly.....but the problem is trainees use non comparable properties from superior neighborhoods to jack the value. The AMC's are supposed to work on a rotational system but they are manipulating the list to funnel work to the cheapest appraiser they can find. I tried to tell Fannie, Freddie, and FHA about the fly by night mortgage brokers that were requesting values pushes to no avail. Was I surprised about the meltdown....NO....As you say it appears the Feds are trying to consolodate everything into a few big banks and want to control every portion of the loan process and funnel as much of the money into their pockets . Were you aware that Andrew Cuomo who wrote the HVCC law and forced it on Fannie and Freddie had very strong ties to the 3rd largest AMC in the nation (he sat on the board at one point). AS YOU SAY........Remember, the 10 most frightening words heard in America are, "I 'm with the government and I'm here to help you".

March 25 2011 at 3:30 PM Report abuse rate up rate down Reply

To bein with during Reagen's era sub prime mortgages didn't exist. Neither did derivatives or bundling of mortgages toegether and selling them on the stock market. During the height of the housing bubble if you were breathing you could get a mortgage. Bankers didn't or wouldn't look at the mortgage appliants ability to pay back the loan. Lenders just wanted the fees connected with the sale of the mortgage. Borroweres had stars in their eyes because they were often told they could afford this and their applications were often an untrue reflection of the borrowers financial picture. Greed at its absolute worst. The people in Washington and Wall Street were in lock step and wouldn't let the big guys (brockerage houses, banks, insurance companies, etc.) fail. Why not? The guys in Washington who were controlling the economy had all come from Wall Street. If you want to see how to do a major recession right just look at the difference between Iceland, which did let the bankrupt guys fail and Ireland who propped up the bankrupt ones. Guess which economy is in good shape now and which one is failing? Hint: can you say Iceland? And before we start blaming the mess we're in on Obama remember "W" was in chage when the bailouts and the too big to fail business started.

March 25 2011 at 1:20 PM Report abuse rate up rate down Reply