May 21, 2010
Dear NAMB Member,
Last night, the Senate passed S. 3217, the “Restoring American Financial Stability Act of 2010,” by a vote of 59-39, sending it to Conference Committee, where members of both chambers of Congress will work to reconcile this bill and House passed bill H.R. 4173, the “Wall Street Reform and Consumer Protection Act of 2009.” NAMB will continue advocating on behalf of its members to protect their profession as the legislative process moves forward.
I. FAQ
1. As a mortgage broker, can I still offer zero cost loans?
YES. As currently written, the legislation does not restrict originators from offering zero cost loan products. The mortgage originator may receive their compensation via an increase in the par rate but no additional compensation is permitted. This is the direction the new Federal Reserve Board regulation was taking. NAMB expressed our concerns with this approach as we did when the FRB issued their proposed rule. Also remember, on the new GFE it can be argued mortgage brokers disclose all their compensation in Block 1 and the consumer receives a credit for the higher interest rate that can be used as they see fit. What is being removed from the system is mortgage originator (mortgage brokers and loan officers at a bank or lender office – overages are banned) pricing discretion and incentive payments for a particular loan type (the regulators must deal with incentive payments to lenders from Wall Street, which remain permissible).
2. How will this legislation affect YSP (Merkley (D-OR)/Klobuchar (D-MN) Amendment)?
Provisions in the Merkley (D-OR)/Klobuchar (D-MN) amendment will prohibit the total amount of direct and indirect compensation paid to mortgage originators from varying based on the terms of a loan. The compensation can be based on the amount of the loan. To be consistent with the RESPA Final Rule, mortgage brokers will have the ability to receive compensation (either all upfront or all on the backend) since indirect compensation and other costs of the closing is fully credited to the borrower on the GFE. One could argue that HUD has solved the problems that this amendment seeks to correct. There are also issues of concern for small loan amounts ($150,000 and below) created by the 3% safe-harbor provisions of this amendment. The 3% safe harbor (consumers “ability to repay”) for fees and expenses will hurt low-income, minorities, first-time home buyers and rural areas since these property prices tend to be lower than $150,000. There are also concerns with this amendment in terms of affiliated business arrangements and steering. Consumer advocates could argue that all transactions between affiliated businesses are suspect of steering and violate this amendment.
3. Is the term “loan originator” defined as individuals, or does it include companies?
As currently written, the term “loan originator” is defined as a “person,” which under TILA includes companies, and is not confined to only individuals. NAMB is advocating for the “loan originator” definition to be consistent with the definition included in the S.A.F.E. Mortgage Licensing Act, which defines “loan originator” as the individual.
4. The Casey (D-PA) Amendment to sunset the HVCC and create strong appraisal independence rules was not included, what now?
Language already exists in the House passed bill, H.R. 4173, offered by Reps. Kanjorski (D-PA), Childers (D-MS), Miller (R-CA), Manzullo (R-IL), and Bachmann (R-MN). NAMB is advocating that these provisions should be retained in Conference Committee during reconciliation of the House and Senate bills. NAMB, alone, fought for these provisions in the House passed bill and will continue to fight to keep them in the conference report.
5. Why did the Senate vote on H.R. 4173 yesterday evening instead of S. 3217?
Procedurally, H.R. 4173 was offered but stripped completely and replaced with the language included in S. 3217.
6. What happens next?
The House and Senate will enter into Conference Committee to reconcile differences between S. 3217 and H.R. 4173. Once a single bill is agreed upon in Conference, it is sent back to both the House and Senate for a final vote. If passed by both chambers, the bill is enrolled and sent to the President to be signed into law.
7. Who will be chosen for the Conference Committee?
House Committee on Financial Services Chairman Barney Frank (D-MA) is expected to preside as Chairman over the Conference Committee. House leadership has not indicated when they’ll announce conferees officially, but some have speculated as early as next week. Conferees are likely to include senior members of the House Financial Services Committee along with some members from the House Agriculture Committee, to address the derivatives component of the bill. We expect at least twelve Senate conferees to be officially announced Monday, with five Democrats and four Republicans from the Senate Committee on Banking, Housing, and Urban Affairs, and two Democrats and one Republican from the Senate Committee on Agriculture, Nutrition, and Forestry. Chairman Frank (D-MA) and Chairman Dodd (D-CT) have made it clear that they would like to get a reconciled bill the President by July 4th.
II. More information on NAMB concerns:
1. Conflicting underwriting standards created by inconsistencies between the Merkley (D-OR)/Klobuchar (D-MN) and Landrieu (D-LA)/Isakson (R-GA) amendments.
Under the present construct with the two amendments, a loan could be exempt from the 5% risk retention requirements but not pass the ability to repay safe harbor section of the Merkley/Klobuchar amendment. Creditors will have conflicting underwriting standards with which they must comply being written by two different agencies and banking regulators. A resolution to this issue would be to create a safe harbor in the Merkley/Klobuchar amendment for having met the ability to repay standards if the mortgage meets the criteria for qualified residential mortgages as defined in the Landrieu/Isakson amendment. This approach will remove any chance of a conflict between loan products referenced under the Landrieu/Isakson amendment and loan products referenced in the Merkley/Klobuchar amendment. Rule writing should be left with the banking agencies as set forth in the Landrieu/Isakson amendment.
2. Provisions to sunset the HVCC and strengthen appraisal independence standards are not included.
NAMB supported an amendment offered by Senator Casey (D-PA) that would have, upon enactment, sunset the controversial HVCC prior to its expiration date and replaced it with a more coherent and workable appraisal independence solution. It also required the GAO to conduct a study on the effects the HVCC has had on mortgage brokers, other small business professionals and consumers. The amendment would have also created strong appraisal independence rules; imposed greater scrutiny on industry participants in the appraisal process; provided greater protections to consumers who engage in the mortgage process; and provided strong federal standards for the AMCs. Language already exists in the House passed bill, H.R. 4173, offered by Reps. Kanjorski (D-PA), Miller (R-CA), and Childers (D-MS). NAMB believes these provisions should be retained in Conference Committee during reconciliation of the House and Senate bills.
CONTACT YOUR SENATORS IMMEDIATELY to protect your profession and stay in business!