The argument on yield spread premium is, at best, a circular one.
In reality, it's a procyclical distraction from the very real fact the mortgage finance system is now designed to put an end to mortgage brokers as we know them.
On Tuesday, HousingWire published an op-ed from our frequent columnist Rick Grant. In the headline, he asks "What’s our message about loan officer compensation?" Let's be clear, when our columnists say "ours," they mean from their own perspective.
Indeed, many letters to the editor Wednesday pointed to Grant's unfortunate run in with a bad broker on a second lien as a primary reason for an attack on loan officers.
I don't think this is the case. And I don't think arguing provides anything more than a distraction to the fact that the hopes of mortgage brokers are fading fast.
And let's look at who is in their corner. The National Association of Mortgage Brokers and the National Association of Independent Housing Professionals both sued the Federal Reserve for its final rule on loan originator compensation and yield spread premium disclosure under Regulation Z, coming into force in about two week's time.
(The Federal Reserve is hosting a webinar tomorrow on Regulation Z, the slides from which can be previewed by clicking here.)
On Tuesday, House Financial Services Committee, Chairman Spencer Bachus sent a letter to Federal Reserve Chairman Ben Bernanke, asking for an extension the implementation date of the loan originator compensation rule.
The letter notes that industry members complain that the final regulation is “intentionally vague,” and the Board refused to provide formal guidance and Fed staff provide different interpretations of its meaning, according to law firm Patton Boggs.
Broker reaction to Regulation Z is predictable: "Small shops like mine are being told by some lenders how we can pay our loan officers," said Naomi Farley a mortgage broker at Pasedena, Calif.-based Mortgage Resources. "What other business is told how to pay their independent contractors?"
"We are brokers paying salespeople, just like Realtors are brokers paying salespeople," she added. "They are not being told their people have to be hourly or salaried, as some banks have interpreted 'the final rule' to say. Needless to say, the Fed attorney who wrote this rule seems to be all powerful and overruling the IRS, and largely unavailable for discussion."
But the interesting issue, one the trade groups are hoping on, is that lender-originated loans don't need to follow the same yield spread premium disclosure.
So, it is clear that the playing field is uneven. And the game is one-sided.
Take for example the judge consolidating the two lawsuits into one (NAMB will challenge this). That is a clear move of the "us against them" attitude that prevails against brokers.
"The Fed has unlimited resources while NAMB and NAIHP are fighting for members in a constantly constricting space," said one source in the middle of the fight. "Do the math: there aren't too many brokers left, almost no bad brokers, and what's left the Fed wants out of business."
"And while the trade groups fight, mom-and-pop brokers are going out of business right now," the source told HousingWire.
Marc Savitt, the president of the NAIHP, estimates brokers are involved in only 10% of mortgage originations today. "That's because there have been rumors, there has been speculation, but there is no proof that YSP is a tool for the inherent victimization of consumers," he said.
"The consumer has a right to see every aspect of their loan," he said, in reference to the uneven application of Reg Z disclosure. "And frankly vilifying YSP is getting a little old."
I could not immediately verify Savitt's claim that loans are usually cheaper when one goes through a broker than when using a lender. But it's hard not to see the regulations as inadvertently anti-capitalist. But, today, most regulation seems to be a gift to the biggest lenders and players.
Comments Wednesday by Elizabeth Warren from the Consumer Financial Protection Bureau are promising for brokers. She described talking to those who put together mortgage loans and seemed sincerely sympathetic to their plight.
The first order of business is to consolidate TILA and RESPA forms. But this, too, is a concern. With consolidation as a more common and useful tactic, why do the broker trade groups appear so fractious?
A YouTube video by NAMB Chairman Mike Anderson, appears uncoached and extemporaneous. Blog postings by Savitt move from an adversarial tone to one of clear frustration.
"It has come to my attention certain persons within NAMB, have been insinuating difficulties with our lawsuit against the Fed, because our attorney will be changing law firms," he writes at one point.
"It’s unfortunate; NAIHP must endure continued attacks by some in our own industry," he writes in another post. In yet another, Savitt laments the "mixed messages" Anderson is sending.
Come July 21, the CFPB will be in charge. Whether or not this proves to be a total positive is unclear.
However, suing the Fed over Regulation Z with the April implementation right on top of us feels rushed, confused and uncoordinated.
At what point will any aspect of mortgage finance be able to launch an independent defense of itself?
Keeping in mind all of this is in the context of the editor's chair, look at the trending topics. There is a clear desire to reduce the size of monoliths in the mortgage market: The government-sponsored enterprises, the big four.
The slippery slope is that owners and employees of either the big banks or small mortgage lenders will spend their careers forever toeing middle-market positions.f
The real shame is such unreasonable logic is not outside the realm of possibility.
And speaking on the fading hopes erstwhile, I can't help but wonder how many small brokers went out of business in the time it took to write this column.
Jacob Gaffney is the editor of HousingWire.
Follow him on Twitter @JacobGaffney.