Boukema Questions Page 4 fraudulent loans decrease or increase? Will consumers/buyers have a remote chance of obtaining the best loan for their needs? Will consumers/buyers interests be best served? The answer is an emphatic NO! Hearing held by the Subcommittee on Housing and "Real Estate Settlement Procedures Act (RESPA)" Questions for Mr. Ronnie J. Wynn from Congresswoman Marge Roukema: 1. Do mortgage brokers charge consumers for their services? Mortgage brokers are specialists whose primary function is to find mortgage financing for homebuyers. As a result, mortgage brokers do charge for the services they perform (evaluating lender price, reputation, processing performance, etc. and processing the loan) Lenders typically have formal agreements with mortgage brokers. With regard to fees, their fees are typically substituted for a portion of the fee charged by the lender if the borrower had gone directly to that lender. For example, if a lender has a price of 10 percent and 2 discount points for borrowers, it may offer a price of 10 percent and 1 1/2 points to a broker with the expectation that the broker will charge the borrower one-half point. Mortgage brokers charge approximately one-half point (50 basis points). 3. 4. 5. Do they often add a charge to the loan price given to them by the lender? As was described in the answer to Question 1, they do add a fee. Lenders do monitor fees charged by mortgage brokers to ensure that fees are reasonable. Do CLO systems perform services similar to or the same as a mortgage broker at least through the point of a loan application? While CLOS do provide prices of difference lenders on their systems, there are important differences. The number of lenders on a CLO system is usually very small. A mortgage broker can have relationships with many lenders having diverse products. Being specialists, mortgage brokers are constantly seeking new relationships to expand opportunities. A CLO as an ancillary service of a real estate broker does not have that concern. The fundamental difference is the manner of getting customers. The mortgage broker only obtains business because of the quality of their work. They do not pay any fees to the real estate broker. The real estate broker does not receive a fee for referring the borrower to a mortgage broker but does receive a fee from the CLO. Aren't CLOs really a mortgage brokerage function being performed at the real estate broker's office? While there are similarities, there are differences. They are: 1. CLOS generally have a smaller number of lenders on system. 2. There is the quality control concern. 6. Aside from conflict of interest arguments, why should a real estate brokerage company performing CLO services resulting in a loan application not be entitled to receive reasonable compensation, particularly when they have incurred additional expense? The principal problem involves how the CLO obtains its business. In the course of shopping for a home, the real estate agent is able to develop a close relationship with the borrower. Because of this relationship, the real estate agent is able to exercise considerable influence and to steer the borrower to the lender that pays a fee to the real estate agent. The mortgage broker has no such relationship and must compete in the market place for his/her business. Response from Ronnie J. Wynn to Chairman Gonzalez' Questions Question: In your testimony on page 5, you state that homebuyers should not have to pay extraneous charges to a real estate agent for help in finding a loan because these services have traditionally been regarded as one of the services brokers/agents provide in order to consummate a transaction. Why would you regard computerized loan systems, a relatively recent innovation, as a traditional service that brokers have provided? Answer: Computers have brought great conveniences to modern day life. Yet they should not be used as excuses to increase expenses, but as devices to expedite loan selection and processing. Because a computer makes a process more efficient it should result in lower costs, not another layer of costs. As a practical matter, real estate agents have long used "rate sheets" dropped off by mortgage companies at the real estate office. It is no more complex, in fact, it is arguably more convenient for the real estate agent to use a computer screen to select various products than to flip through a file folder of rate sheets. Yet in the past, the real estate agent did not charge to provide potential borrowers with information from rate sheets. Nor should they receive fees simply for providing minimal loan application information or reviewing computer fields providing interest rate information. Question: In Mr. Druger's testimony on page 1, the assertion is made that no one has ever brought to Citicorp's attention a single consumer complaint filed against Mortgagepower with HUD. The complaints are from their competitors. Answer: It is important that under the "borrower pay" exception outlined in the HUD Opinion letters, the payment of a fee is made by the borrower to the real estate agent. Therefore, there is no basis for a consumer to complain about Citicorp, because the Mortgagepower program, by its very design, distances Citicorp from the payment of any fee. While Citicorp's program involves a de minimis disclosure (see attachment) the borrower is not encouraged to shop elsewhere for more competitive rates or given any indication whatsoever whether this fee is customary or extraordinary. The Citicorp program is perfectly legal under the current HUD position. Even if a consumer knows of the existence of RESPA, and understands the process for filing a complaint with HUD pursuant to that statute, HUD would not act to redress the consumer's complaint. To: Jerry Baker From: Greta Cohen, Subject: Citicorp Moltgage Power Compared to Countrywide Date: November 29, 1989 A comparison between selected mortgage programs for Citicorp Mortgage Power and Countrywide Funding Corporation are attached. Data Sources: The Citicorp Mortgage Power rate information was obtained from a third-party, Bank Lease Consultants, a firm that specializes in rate monitoring around the country. A representative of Bank Lease has obtained the rate information directly from the Product Managment Department at Citicorp Mortgage, and then checked with the local branches to ensure the programs' availability. Citicorp generally revises their rates and points on Thursday only. As a result, Bank Lease was asked to obtain the new information weekly, and then to spot check the rates throughout the week to ensure that any modifications in their mortgage offerings were correctly captured. For these reasons, we believe the Citicorp Mortgage Power rates to be both accurate and objective. The Countrywide Funding Corporation rate information was obtained directly from rate sheets used by the Retail Branch Department. These rate sheets indicate the various mortgage programs available directly to consumers. Program Comparison: As the table illustrates, four different types of loans were compared around the country. The programs and locations were chosen to cover some of the most popular types of mortgages, as well as represent a large segment of the country where both Citicorp and Countrywide are well represented. The footnotes to the table explain the various assumptions that were used in the calculation of the APRS. If you have any questions regarding this, please let me know. |