Mortgage Lenders Fight Proposed Pay Changes; Granted Stay
The month of April brings with it possible changes to the way mortgage loan officers get paid. The new rules proposed by the Federal Reserve are designed to protect consumers and the US housing market. But those who make home loans - like Charlotte banker Bill McConnell - are worried the changes will hurt their industry, and in the long run, hurt homebuyers too. "This is the biggest revolution in the mortgage business we have seen in decades," McConnell says. McConnell could see the way he gets paid changed significantly. In the past, loan officers would get a commission based on the size of the loan. But, they could also get paid more if the borrower agreed to a higher interest rate. Different borrowers might be quoted different rates to get a better deal. Home buyers then had the chance to shop around and find a lender willing to make a smaller commission. But the planned changes would make all that flexibility go away. Loan officers' commissions would be based solely on the amount of the mortgage and not its rate. The whole idea is to protect borrowers. Al Ripley is an attorney with the North Carolina Justice Center in Raleigh. He says he constantly works with people who are in foreclosure because they were steered toward bad mortgages by greedy lenders. "It was awful," Ripley says. "You had many circumstances where people were being targeted by brokers and other financial institutions to sell as many adjustable rate mortgages as possible so they could be sold into trusts and packages for the secondary market. It was an industry that was flourishing on that practice." Keith Luedeman owns Charlotte based GoodMortgage.com. He admits predatory lending was a problem. But he thinks the new rules may sound better than they really are. "Now on the surface, that sounds like a really good idea," Luedeman says. "But the fact of the matter is that that extra money through a higher rate doesn't always go to pay the loan officer. Sometimes it can be used to benefit the customer by paying part of their closing costs." Luedeman says increased regulation and licensing requirements have chased out the industry's bad characters. That and a bad housing market adds Ray Grace, North Carolina's Chief Deputy Commissioner of Banks. "In North Carolina two years ago there were 18,000 licensed mortgage loan originators in the state.," says Grace. "And that number this year is down to 5,000." Grace says his office has been hearing a lot lately from mortgage companies concerned about the new rules. Two groups even sued to block the changes from taking effect. Michael D'Alonzo is president of the National Association of Mortgage Brokers. "There's a lot of loan officers that are fleeing from these broker companies and either getting out of the business or going to work for a bank," D'Alonzo says. "Our argument is that this rule is having immediate damage on small businesses." Small lending companies say the proposed rules would also give banks more flexibility in what they can charge borrowers. D'Alonzo says the changes will lead to the death of many smaller lenders. "And you end up with the four big banks out there providing mortgages for everyone. And we all know where that's going to go," he says. "The rates are gonna go higher and the costs are gonna go higher because the competition is extremely low." Lenders like Luedeman at GoodMortgage.com say they're particularly concerned about how the changes might affect first-time homebuyers and those buying cheaper homes with smaller loans. Those loans mean a smaller commission. Luedeman says making small loans may not prove to be profitable for his company of its employees under the new rules. McConnell, the Charlotte mortgage banker we heard from earlier, says lenders are worried they won't be able to make as much money. "Right now you're seeing a little musical chairs in the industry. People out interviewing for new jobs, seeing if the pasture is a little greener somewhere else I think it's fair to say there's some angst right now," says McConnell. Ray Grace, North Carolina's Deputy Banking Commissioner, says there are a number of potential side effects those in Washington haven't thought about. "The law of unintended consequences is always the greatest concern I have with major legislation or rulemaking like this," Grace says. "[It's] difficult for those making the rules or passing the legislation to foresee all the consequences of what they're doing." A judge in Washington on Wednesday failed to give the mortgage groups who sued over the new rules the temporary restraining order they'd sought to block the rules from taking effect. Those groups appealed and last Thursday a judge granted them a stay. A hearing is planned for Tuesday. April 5. Until then, the proposed changes won't be implemented.