by Brian Brady
Commercial Real Estate Finance Expert
Structured Debt and Equity
Licensed Real Estate Broker in AL, CA, and FL
HR 3915, the Anti-Consumer mortgage bill has passed the House Financial Services Committee. This was expected. The committee is chaired by the bill’s sponsor, Barney Frank. This bill seeks to destroy the consumer protections, guaranteed by free markets, through: a legislated oligopoly, a reduction is loan choices, and a contraction of loan pricing options, all dressed up as consumer protection.
This isn’t cause for concern…yet. Today’s House FSA approval was akin to a Politburo approval of Khrushchev’s recommendation of the Communist slate of officials – with Khrushchev presiding.
The horse trading with this bill starts tomorrow. The bill will be read to the House “Committee of the Whole” where time will be allotted for debate and amendments will be considered. ( C-SPAN junkies, this is where time is allotted to the “Gentlewoman from California” wherein she rambles about baby seals for two minutes and offers her support for the mortgage bill. Then, the “Gentleman from Arizona” talks about the second amendment for two minutes and concludes with his dissent for the mortgage bill. )
Mandatory licensing of originators will most likely be recommended although nobody will really understand why it’s necessary. Republicans and Democrats alike favor licensing- the former for its ability to fleece money from people without the appearance of a tax and the latter because it asserts some level of governmental control.
The “fiduciary duty” rule will be attached, also. Nobody knows what that means but it sounds SO DAMNED GOOD to the little people back in the home state.
Yield Spread Premium will not go away but be limited to 1%. Prepayment penalties will be abolished. A lobbyist will buy a legislator lunch, explain in fourth grade math about how it helps the consumer, who, in turn, will explain the concept to the Committee of the Whole, in third grade math. That amendment will be made and everyone will champion the cause of the consumer and smoke another cigar.
The Committee of the Whole will read the bill for a third time, with my predicted amendments, and the House will overwhelmingly pass the bill for referral to the Senate.
The Distinguished Senate Leader will announce his support for the bill explaining that while prostitution is legal in his home state, it is a misdemeanor for any originator to not verify the prostitute’s income on a home loan; that, of course, protects the prostitute from sober bankers (drunken bankers on convention are still a menace, albeit, profitable menaces).
The bill will then be referred to the Senate Committee on Banking. That Chairman believes that Big Ben has the whole matter under control. Licensing will be preserved on the state level but with a nod to the Fed for fee collection. The banks will breathe a sigh of relief and the mortgage brokers will get nervous.
That amended bill will get sent to the Senate for debate and vote. More baby seal talk, gun talk, and preservation of “fiduciary duty to the consumer” talk. Senators, more proficient at math than their House counterparts, will reaffirm, in first grade math, why Yield Spread Premium is pro-consumer and up the ante to 2%. Prepayment penalties will be limited to one year or less as a nod to the importance of “financial stability”.
The House and Senate managers will meet to iron out the differences. Forceful rhetoric will be made, on television, by both parties and the President will sign the amended bill into law.
Originators will soon need a driver’s license but will pay $125/year to a federal agency. YSP and prepayment penalties will be limited to reasonable levels, and the originators will lose their driver’s license if they breach their fiduciary duty- although nobody will ever understand what that really means.
Rogue salespeople will move on to some other industry to exploit, originators will go back to wearing ties and skirts so that the police will know they are originators when they show their driver’s license, and nobody will be lent any money unless they have a lot of it.
I figured this whole thing out, all by myself, right here.
< ?PHP include("https://www.bloodhoundrealty.com/BloodhoundBlog/HR3915.php"); ?>
Robert Kerr says:
“the Anti-Consumer mortgage bill” … “seeks to destroy the consumer protections” … “a legislated oligopoly” … “akin to a Politburo approval of Khrushchev’s recommendation of the Communist slate of officials”
Overreact much, Brian?
November 7, 2007 — 12:05 am
Todd Carpenter says:
Quite possibly, your best post ever. I’m disappointed to find fiduciaryduty.com is taken. would have been a great name for a new mortgage blog.
November 7, 2007 — 1:24 am
James Evins II says:
I hope you are right. People like Barny Frank scare me. He has been on the hill wayyyyyy tooooo long. He is out of touch.
November 7, 2007 — 1:59 am
Larry Morris says:
Great post Brian as usual. If the bill passed as origionally written, I wonder how many congressmen/women would have been able to refinance their own homes…
November 7, 2007 — 1:59 am
Geno Petro says:
Great post Brian. Can I get CE credits for reading it twice?
November 7, 2007 — 8:38 am
Jeff Kempe says:
That, Brian, perfectly exemplifies why people read BHB. Terrific piece!
November 7, 2007 — 8:45 am
Stan Ethridge says:
Brian……
Very good piece. It cracked me up because it is so true. You have given me an idea to change the name of my company to Fiduciary Duty Mortgage. We have the lowest rates and the most fiduciary duty you can get.
November 7, 2007 — 9:28 am
Jim Cosgrove says:
Hmmm, shouldn’t there be some sort of tax hike to pay for this? And don’t we really need a new department to manage all of this? Old “Hot Bottom” Frank must be slipping, he could have packed a lot more into this.
November 7, 2007 — 9:33 am
Brian Brady says:
“Overreact much, Brian?”
It was a bit much to compare Nikita to Congressman Frank but he’s dead and can’t be offended.
November 7, 2007 — 9:42 am
Eric Blackwell says:
@Brian–Enjoyed the post!
‘but he’s dead and can’t be offended.’ Too funny!
@Jim Cosgrove-solid idea, but I think we need a “blue ribbon panel” to oversee the department. We just gotta make sure that THEY stay in line…grin
Eric
November 7, 2007 — 10:06 am
Brian Brady says:
Eric, I think this is a beginning of a beautiful friendship.
November 7, 2007 — 10:11 am
William J Archambault Jr says:
Brian,
Well said!
I do hope you’re wrong about the limit on YSP, I can’t eliminate closing cost with out it and 1% only lowers closing cost.
If this passes we’ll all have to become bankers, but then it will thin the heard and decrease competition, which will raise the closing cost to the consumer!
Once again the Demagogs are buying our votes with money from our pockets.
Bill
William J Archambault Jr
The Real Estate Investment Institute
First National Mortgage Sources
November 7, 2007 — 12:34 pm
Jeff Brown says:
Brian — Though I never thought this piece of sausage would pass in its original form. A million monkeys typing for a million years would have a better chance than I, of explaining it as well as you did.
As Grandpa used to say, “Simply stellar”.
November 7, 2007 — 3:12 pm
Marc Blasi says:
OK, so how do you REALLY feel?
I think you may have given them too much credit on the mathemetics grade levels however!
Most of them probably couldn’t count to 20 without taking their shoes off.
This is going to be interesting – and extremely annoying.
November 7, 2007 — 4:27 pm
Brian Brady says:
The 30-50 year olds among us will appreciate the last link- think Sat morning
November 7, 2007 — 6:13 pm
Robert Kerr says:
Don’t look now, Brian, but Andrew Cuomo’s begun investigating Fannie and Freddie. The subpeoenas were announced yesterday.
November 8, 2007 — 6:27 am
Mike Volpe says:
So, another words, the Congress hopes to pull a Jedi mind trick. They will limit YSP to one percent so that it is more difficult to cry foul. This eliminates most opportunities I have to pay for people’s closing costs. What this will do is slow bleed the industry out of existence. These guys may think they are being slick however they will be exposed.
I also believe we need to move the story forward. People get how insidious this bill is. Now, we need to move to something else. I think it is time to reveal the villains. That is what I have done and there are plenty and everyone can be contacted. Here is the piece…
http://proprietornation.blogspot.com/2007/11/villains-of-hr-3915.html
November 8, 2007 — 11:17 am
Brian Brady says:
Mike-
Read the whole post. Our industry is not in fear of extinction. This whole bill is gonna look a whole’ lot different.
Click the last link of the story, Mike- we’re a long way from extinction.
November 8, 2007 — 1:32 pm
Mike Volpe says:
Brian, with all due respect, I know the bill as well as you, and this bill will make brokers extinct.
Everything else being equal the rate is much lower with a three year pre payment penalty. If a borrower has no other way to make a loan affordable, why shouldn’t they have that option available.
I do most of my loans paying for everyone’s closing costs. Limiting YSP to 1% makes me extinct so frankly I don’t care about the rest of the industry. Congress is pulling the wool over everyone’s eyes. They have absolutely no idea how any of this came about.
They take no blame themselves. Do you know why it is so easy to rip people off? IT IS BECAUSE THERE ARE OVER 100 DOCUMENTS TO SIGN. Do you know why that is? It is because Congress can’t control itself in regulating the industry. Thus, banks have to create new disclosures to deal with each and every new regulation. Thus, the practical effect is most people just sign and never read a word of any document. Does that make sense? Who’s fault is that? It’s Congress’ fault and yet they want to create even more regulation. Does that make sense?
I know this bill will look different however I also know that ultimately its creators want to put us out of business. They gave themselves away when they not only limited YSP but fees as well. If we can’t make any money in YSP or in fees, then we can’t make any money. They may play with the numbers but ultimately their goal is to limit how much money we can make. Their only purpose is to put us out of business. There are already limits of 5.5% of the loan amount and now they want to make those even lower. Why, because they want to put us out of business.
November 8, 2007 — 1:42 pm
Brian Brady says:
“Brian, with all due respect, I know the bill as well as you, and this bill will make brokers extinct.”
Okay, Mike. I’m not worried about being extinct; I’ll survive no matter what they do. In fact, eliminating mortgage brokers and YSP would help my business.
Privately, I think it’s funny watching Barney Frank posture to eventually get shot down by Chris Dodd; his counterpart in the Senate.
This bill is going nowhere fast- I hope they do license us so they can feel like they did something and let us get back to the important task at hand- financing the American dream
November 8, 2007 — 2:09 pm
Dan Green says:
We’re all a little too close to the problem to be objective about it.
The truth is that every industry and every party will lose a little of what they want here — the hallmark of a good negotiation.
When it’s all over, some other industry will be the cross-hairs for something else. And we’ll all sit on the sidelines and say “who cares”.
For now, it’s all just conjecture and guesswork. And that include Cuomo’s investigations.
November 8, 2007 — 2:24 pm
Bob in San Diego says:
Brian,
The only problem I see with the scenario you have so artfully illustrated is that there is no desire to actually make this law.
It’s simply posturing.
November 8, 2007 — 9:12 pm
Mike Volpe says:
Brian,
where in the bill did you find that YSP will be limited to one percent?
November 9, 2007 — 2:40 pm
Mike Volpe says:
Brian, you are giving Dodd too much credit. He is in favor of eliminating YSP as well.
November 9, 2007 — 2:51 pm
Allison Stewart says:
I love the math analogies… Brian your wit is almost as sharp as your perspective! Loved this piece.
November 11, 2007 — 5:04 am