NAMB Testimony Before the House Subcommittee on "Power Broker" and almost always earns fees on both sides of the transaction. If a member of this committee would like to experience what is happening to borrowers in Queens, we could easily arrange to walk into various real estate broker offices and ask, "What do I have to do to have business referred to my office?" If we can approve loans faster and with better rates than our competitors, then we should be able to develop business. However, the answer is that the business will be referred to the highest bidder. Queens is an extreme example. However, in the suburbs of New York City, for example Long Island, the situation is almost as bad with Citibank controlling about 10% of the mortgage market with their "Power Broker" (referral fee) program. Our own association surveys done by our members throughout the nation have shown that rates and points offered by these highly touted single lender CLO programs are consistently higher and more expensive than the other programs available in the same market. Where then, are the benefits to the consumer? What we have is an example of great salesmanship of an inferior product. There have been discussions regarding support for additional changes in state laws similar to the one passed in Pennsylvania which would limit real estate brokers to receiving only $100.00 for mortgage referrals to lenders. We feel that although this might be a compromise within the presently divided real estate industry, it is another example of how compromise frequently produces imperfect systems and, in fact, a compromise of the basic underlying moral tenants when the issues are difficult. We would rather support additional changes in state laws similar to those in the many other states which specifically don't allow payment of mortgage origination fees to real estate brokers or, conversely, only allow such payment to properly licensed Mortgage Brokers. Professional Service versus Pure Referral: A big issue, in our minds at least, is whether or not the consumer is receiving an actual benefit from the service provided. Will the service provided give the potential borrower a better deal when you consider rates, points and terms? In the case of a single lender CLO, obviously not. The lender is selling only service or speed or institution recognition value, not the best rates, points and terms in the market place. Their system doesn't even promote competitiveness in such a transaction since it is a captive transaction which they don't need to negotiate. On the other hand, if their system had to compete against other similar systems on a rate and terms basis, then competition could be promoted. Technology versus The Use of Technology: Technology isn ́t the issue; the use of the technology is. A CLO for the collection and transmittal of mortgage application data is no different than typing a NAMB Testimony Before the House Subcommittee on Housing and Community Development August 8, 1990 Page 11 mortgage application and forwarding it by more traditional means such as courier or mail. The only difference is the use of electronic means such as software, modem and computer. Regardless of cost, if the method is cost efficient, the market place will support it. If the method isn't cost efficient, the market place won't support it. Technology which will be cost effective and mortgage applications which are not guided by conflict of interest should be promoted. 1970 Terminology with 1990 Technology: In our opinion, the underlying intent of RESPA isn't out-of-date. The intent was to eliminate kickbacks and conflicts of interest. But, RESPA's terminology is out-of-date with today's technology. Where RESPA has failed, HUD can correct the situation by updating RESPA to take into account today's market and today's terminology. They can partially accomplish this by allowing public comment regarding proposed RESPA changes and the direction of their private rulings. The December 7, 1988, "leaked" draft had the benefit of having received public comment throughout the previous summer and fall regarding the direction HUD's opinions had been taking. We applaud most of the direction taken afterwards as a result of the public airing of their policies. We also believe that when HUD does issue private rulings they should be less narrowly construed and should be applied to all institutions similarly situated. Comparative Fees for Services: It is our belief that the Mortgage Broker of today, dealing in Fannie Mae and Freddie Mac conforming first mortgage residential loans, trails the industry in the level of pay received for the value of the services delivered and the amount of work performed.. Typical market rates for the service of such Mortgage Brokers will run from one to two percent of the loan amount. When you consider the savings over the life of a mortgage, and compare the one to two percent they receive to the work done and the fees received by real estate brokers you can readily see the underpayment. If there is any type of cap placed on the fee paid for such services as has been done recently by at least one lender with whom we are familiar, then we feel the same type of cap should be placed on the real estate broker fee. In most cases, Mortgage Brokers, either because of their low levels of capitalization or because of their state laws, don ́t qualify to be able to receive servicing fees for the mortgages they originate. Thus, those Mortgage Brokers are totally dependent on their origination fee for their income. Controlled Business Arrangements: These types of arrangements should be viewed in terms of the potential conflicts of interest mentioned before. If the conflict of interest can ́t be erased by the disclosure given, then the controlled business arrangement shouldn ́t be allowed. We don't believe the conflict of interest can be erased. think it is abusive to the consumer. Disclosure won't help either. again only transfers the responsibility to an unwary and susceptible public. We It NAMB Testimony Before the House Subcommittee on August 8, 1990 Page 12 Costs to the Consumer: We believe that the ultimate determination of the costs to the consumer can ́t be found merely by looking at the cost of the terminal being installed in a real estate broker's office, or in the cost paid by the consumer for the taking and referring of an application by the real estate broker. Rather, the cost can only be determined by examining closely how the long-term consumer benefits from the type of loan which is obtained for them through the system utilized. A professional Mortgage Broker operating only in the interests of the borrower is the one individual who is best suited for truly obtaining the lowest overall, long-term cost for the borrower regardless of whether the Mortgage Broker places the mortgage with Citibank, Chemical, Prudential, Countrywide, Empire, Lincoln, or through Rennie Mae, or with some lender no one ever heard of and who doesn't have a CLO. Summary and Recommendations As you consider the directions to take in the future regarding RESPA, please keep in mind the importance of protecting those benefits which the Mortgage Broker provides to the consumer and the market. Taking the wrong direction in these issues will mean the loss of a significant consumer advocate, the Mortgage Broker. We are a fragile industry - more susceptible than most to the directions of legislation and regulations because of our members' small corporate sizes and low capitalization. In summary, we would like to recommend that the subcommittee work to insure that the outdated components of RESPA are updated and enforced. to: Specifically, we would like to recommend that RESPA be clarified 1. Allow Mortgage Brokers to receive a negotiated market place fee for their services which takes into account the specialized and beneficial nature of the service which Mortgage Brokers provide to the real estate borrowers; 2. Not require additional disclosures for Mortgage Brokers which are above and beyond those currently being made for the protection of the consumer; 3. Reinforce and an update terminology which outlawed kickbacks and conflicts of interest; and, NAMB Testimony Before the House Subcommittee on Housing and Community Development August 8, 1990 Page 13 4. Provide support for the separate licensing and registration of any individuals who desire to receive fees for the provision of services to arrange financing for the purchase of residential real estate. Again, we thank you for the opportunity to submit these comments and wish to express our strongest desire to participate fully in the development of any future proposed RESPA changes or to support the efforts of the subcommittee to improve the existing federal mortgage lending legislation and regulation. STATEMENT OF E. ROBERT LEVY, EXECUTIVE DIRECTOR AND LEGAL COUM OF THE MORTGAGE BANKERS ASSOCIATION OF NEW JERSEY TO: U.S. House of Representatives, Subcommittee on Housing and Community Development of the Committee on Banking, Finance and Urban Affairs Thank you for the opportunity to appear here today at what I view is a critically important hearing in terms of the interest of the home buying public. The specific issue, which I am here to address, involves the right of real estate brokers or salespersons (I will refer to them collectively as "Realtors") to be paid not only by sellers of homes, through sales commissions, but also by the buyers of the same homes in connection with the obtaining of purchase money mortgage loans. As Executive Director and Counsel to The Mortgage Bankers Association of New Jersey, and as Consultant to the Pennsylvania Mortgage Bankers Association, I have been deeply involved with this issue over a number of years, particularly since the issuance of HUD's now infamous Citicorp "borrower pay" opinion. In fact, I chaired a National Sub-Committee dealing with that opinion and its ramifications. Our position is that Realtors should not be entitled to take any fees in connection with mortgage loan originations on properties which they are selling for a commission. This is because such Realtors are already being compensated through their sales commissions for the work they are doing in assisting home buyers in arranging mortgage loans. In this regard, it is well recognized that the real estate broker/salesperson is the agent of the seller and represents the seller's interest throughout the entire sales transaction and until the closing. Therefore, in assisting a buyer in obtaining a mortgage loan, the real estate broker/salesperson is actually aiding his principal, the seller, by providing the purchase money from which the seller received the sales price and the broker received his/her commission. Therefore, the sales commission is the proper source of a Realtor's profit and the payment of his/her overhead, including the money expended for furniture, fixtures and equipment needed to sell a home and to assist in arranging a mortgage loan to aid the sale. |