Predatory Deception Falsifies New York Times Editorial on Mortgage Brokers
Predatory Deception Falsifies New York Times Editorial on Mortgage Brokers. The Ambitious Ignorance of the Paper’s Call To Ban Yield Spread. My Request for a Retraction and Apology — The Mother of All Letters-to-the-Editor.
Dear Public Editor of the New York Times,
Please retract the editorial of April 10, 2009 titled “Predatory Brokers”. Please issue an apology to all mortgage brokers with the retraction. Please provide space for an op-ed to accurately and honestly describe the work of mortgage brokers to correct the false statements in the editorial, and to suggest how best to regulate the industry.
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What follows is a line-by-line examination of the 26-sentence editorial “Predatory Brokers”. I trust that after your review of my examination, you will concur with my opinion: The writer failed to grasp the basic facts and employed obvious fictions to denounce mortgage brokers.
If you are like me, you will find this misuse of the editorial authority of the most powerful newspaper in the United States to be both horrendous and embarrassing.
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I have just begun to study this matter, but it is my opinion that the central misinformation of the “Predatory Brokers” editorial is based upon the writer’s use of an issue brief from The Center for Responsible Lending.
The statements from the center that I have seen on yield spread, a payment from a lender to a broker, and the central issue in the editorial, are more fiction than fact. The editorial writer repeated those factual errors.
The CRL writer is Jayson Blair and the editorial writer has repeated their obvious falsehoods to create and define his policy prescriptions for a major player in a $12 trillion industry.
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The editorial says “Many brokers do legitimate work that helps homebuyers sort through competing loan proposals and make good choices. In those cases, the fees they get from lenders — typically 1 percent or 2 percent of the loan amount — are fully justified.” (Sentence 9 & 10 of the editorial)
I personally agree with the sentiment the writer states in this passage. I agree that many mortgage brokers do legitimate work. I consider myself to be one of the mortgage brokers that does legitimate work. The next sentence, sentence 10 of the editorial, says that “the fees they (mortgage brokers) get from lenders … are fully justified”. I also agree with that statement. Payments made by lenders to brokers are fully justified when good brokers do their job.
What makes the statement embarrassing for the editorial writer and for the New York Times is that the fees the writer is referring to in sentence 10 are yield spread premium fees. The primary argument of the editorial is that “the most clearly unethical form of payment (to mortgage brokers) is the so-called yield-spread premium” (sentence 17) and they should be outlawed.
In other words, in the same editorial, the writer has stated that yield spread payments “are fully justified” and that yield spread payments should be made illegal. There’s only one logical explanation. The writer didn’t understand yield spread. As you will soon see, that’s not a hard argument to prove.
Nobody should take an editorial seriously which has committed this error, but 20 senators have. They are asking that the editorial’s call to ban yield spread be implemented. The whole world is growing dumber after reading The New York Times.
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I believe the editorial writer made this mistake based upon his reading of an issue brief from The Center for Responsible Lending. The center’s brief is a short collection of falsehoods about yield spread, but a perfect starting place for a quick editorial by a writer who thinks he already understands the subject.
The Nov. 5 2007 issue brief by the Center for Responsible Lending states that yield spread is a “bonus” paid to a mortgage broker “for placing, or steering, a borrower into a higher-cost loan” (The issue brief is titled “Bans on Yield-Spread Premiums and Steering: Protecting Homeowners and Strengthening the Mortgage Market”).
The most important falsehood which the issue brief used, and the editorial writer incorporated, is the assertion that yield spread is a payment for a “higher-cost loan”. This is false. Yield spread is paid on almost all loans originated by brokers. Yield spread is paid if the loan is high-cost or medium-cost or low-cost or no cost.
By describing yield spread as a fee only for high-cost loans, the issue brief and the editorial both legitimately argued that yield spreads should be banned.
If they have both incorrectly defined yield spread, however, and if yield spread is paid on good, bad and indifferent loans, then a ban on yield spread would have the effect of taking away good, bad and indifferent loans. The ban on yield spread is in fact so Draconian that it would bankrupt all mortgage brokers. Do you think you should have been aware of that when you issued your policy?
If all mortgage brokers are bankrupted, then the role of small business in mortgage lending will be destroyed. If small business is destroyed in mortgage lending, then retail banks, the most expensive and slowest source of mortgage loans, will be the only choice consumers have.
I provide further argument later in the article that YIELD SPREAD IS THE KEY AND ESSENTIAL TOOL OF GOOD MORTGAGE LOANS. Until then, please trust me when I say the following: As a banking professional working as a mortgage broker, and as a person with 17 years of daily work in real estate lending and real estate investment, calling for a ban on yield spread is not very different from calling on a ban against words in newspapers.
It is a statement of such shocking ignorance that for those who understand the industry, reading your editorial can and will destroy all faith and deference which a reader might previously have given based upon your reputation. I cannot imagine what people will think if you do not retract the opinion and issue an apology. For any person in my industry, you will forever be both a joke and a menacing influence promoting evil falsehoods.
Right now it is only your editorial which is a joke. Failing to take responsibility for its errors will make the newspaper a joke.
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Yield Spread: 1. A payment from a mortgage lender to a mortgage originator which is equal to a small percentage of a mortgage amount, normally 1% to 3%, determined by the difference (the “spread”) between a wholesale interest rate and a markup to a higher-yield retail rate. 2. Broker compensation based upon the spread in the yield between the wholesale and retail rate.
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Yield spread is a fee paid from a lender to a mortgage originator. It is nothing more and nothing less. A lender who wants a new loan pays a broker a fee for a new loan. The fee the lender pays the broker is yield spread.
Yield spread is a normal and ethical payment for a broker to receive. It could cross the line into an “unethical” payment if the broker charges too much for their services. That can be a problem. It is true that there were too many bad players in the business, but a huge section of them are already gone. I don’t think the editorial writer is aware that 380 major lenders including many brokers have gone out of business since the beginning of the financial crisis, according to The Mortgage Lender Implode-O-Meter, and a ton of unethical companies and players have been washed away in this blood bath.
There were too many mortgage brokers who took advantage of the less educated and charged higher fees then they should. We cannot properly regulate this central fault unless we all know and share the basic facts of a mortgage broker’s work. Your editorial does not have the basic facts and cannot make appropriate policy recommendations.
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If you continue the analogy with a newspaper, and to provide some guidance to the general reader, yield spread is analogous to the placement fee that advertisers pay to appear in newspapers. Readers pay the newsstand price for a newspaper just as borrowers may pay points for a mortgage.
Newspaper readers don’t have the slightest care or interest what advertisers pay to appear in the newspaper. Most borrowers don’t care about the yield spread payment – so long as the terms of their new loan are good.
Lenders pay yield spread to mortgage brokers for a new mortgage investment. Advertisers pay publishers to place their business message in a newspaper.
Can anyone imagine the disbelief of an editorial which suggested that advertisements should be banned in newspapers because they are a kickback from an advertiser to a publisher and readers haven’t been told the fees the advertisers are paying? Is the call for a ban on yield spread equally dumb?
One thing is sure: If the ban on yield spread is enacted, most or all mortgage brokers will go out of business because they can no longer do good mortgage loans. Banks will still have the ability to charge yield spread and to do good loans. All business will shift to them.
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Yield spread is paid on high-cost, medium-cost, and low-cost loans. Banning yield spread, which is the policy of both The Center for Responsible Lending and The New York Times, that ban would have the effect of banning medium-cost and low-cost loans. The clear objective of your editorial is that something should be done to stop high-cost loans to borrowers who should have low-cost loans.
We know the editorial writer did not understand what yield spread is because in the same editorial he argued against high-cost loans but he did not comprehend that a ban on yield-spread would make all mortgage-broker loans high-cost loans. His policy prescription accomplishes the opposite of his goal: If you ban yield spread, you mandate high-cost loans for any mortgage originated by brokers.
What the opinion writer could reasonably have argued is that mortgage brokers should not charge an excessive amount of yield spread. He cannot argue that a yield spread fee is “fully justified” and that new legislation “would rightly make yield-spread premiums illegal” (sentence 22 of the Times editorial).
The even more disturbing truth which the New York Times editorial hides is that YIELD SPREAD IS THE SMARTEST WAY FOR A CONSUMER TO PAY FOR THEIR MORTGAGE.
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The reason I encourage borrowers to use yield spread to pay for a loan is obvious. Let’s review a few examples with real world numbers.
If we are dealing with a $200,000 loan which costs $6,000 to the borrower, the borrower has the choice of paying the $6,000 himself or the borrower can elect to have the lender pay the $6,000. Let’s look exactly at this choice so we understand exactly what we are talking about.
I’m going straight off a rate sheet dated Feb 1, 2010. These are real numbers.
The borrower has a choice between a loan of $200,000 at 5.4% or a loan of $206,000 at 4.875%. The first choice, the $200,000 loan, pays the broker 3% of the loan amount with yield spread. The loan costs the borrower nothing. The monthly payment is $1,123. This is the choice that a ban on yield spread would outlaw.
In the second choice the borrower pays the broker and close costs of $6,000 by adding that amount of money to their loan. His interest rate is better because he is paying the $6,000 and the lender can afford to give him a better rate. The borrower’s rate under this choice is 4.875%. The monthly payment is $1,090.
Which one do you prefer reader? If you use yield spread, your monthly payment is $33/month higher, but your mortgage balance is $6,000 less. If we ban yield spread, and we force clients to pay points and closing costs themselves, then in this case it will take the borrower more than 15 years to make the $33 monthly savings pay off ($6,000/$33 = 15 years).
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There is barely one fool in the world who will pay the points and wait out the 15 years it takes to make this loan make sense. And if you forced 100 fools to make such a choice, it is unlikely even one would attain some financial benefit by paying points.
Yet the New York Times editorial argues not just that the borrower have the option of paying the points and closing costs, they argue that the borrower MUST TAKE THIS OPTION. Banning yield spread requires borrowers to take out high-cost loans if they use a mortgage broker.
Let me repeat the obvious. The editorial is arguing that borrowers be forced to take the bad option which is the expensive option even though the point of their policy is to reduce high-cost loans.
Because borrowers will not take the bad option, they will move their business to retail banks. Mortgage brokers will all go out of business.
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Nobody who understands yield spread would argue for it to be banned. That is why it is so critical for the New York Times to retract its opinion, issue an apology to all mortgage brokers and provide full space for a complete rebuttal.
If any reader thinks that ignorance cannot rule this world, please take note that The Center for Responsible Lending, the group which argued for a ban on yield spread, it released an issue brief on August 31, 2009, saying that the Fed has issued a final proposal saying that mortgage broker fees “would not increase based on changes in the interest rate.” Changes in interest rate is the way brokers charge yield spread.
The real world implications of this nonsensical editorial are real. A group of prominent senators has just written a letter calling for a ban on yield spread. Guess who is the source of intelligence on this strange public policy proposal (read the letter here)?
Look above at the example. The mortgage broker changed the interest rate from 4.875% to 5.4%. The Fed proposal would ban fees “based on changes in interest rate”. It’s true that the borrower added $33 to their monthly payment to reduce their loan balance by $6,000. They didn’t want to wait 15 YEARS for the monthly savings to pay off and they didn’t want to add $6,000 to their loan balance.
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EVERY MORTGAGE CUSTOMER SHOULD INSIST THAT THEIR MORTGAGE BROKER PAY FOR THE ENTIRE TRANSACTION WITH YIELD SPREAD.
I call attention to my opinion with block letters because I am proud of all the mortgage transactions which I have originated which were paid for entirely with yield spread. That means the lender paid for the loan and the borrower received an acceptable rate and the borrower paid nothing for that privilege.
The writer of the editorial has no awareness that this is the smartest and the best way for a consumer to take out a mortgage. Who do you think is right? Is it me? Is it the editorial writer? Is it the creature from the black lagoon?
It’s not just my opinion based upon 17 years of real estate lending and a complete and full mastery of the subject matter discussed here. It is also the assertion of the academic research which has been written on the subject (but obviously not including the paper from The Center for Responsible Lending). The center will comfortably join Jayson Blair in New York Times history.
The editorial writer has used the work of a terrible reporter or a deceptive reporter.
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“The first step must be to outlaw the kickbacks that lenders pay brokers for steering clients into costlier loans.” (sentence 13 of the New York Times editorial)
Do you wonder where the editorial writer got this thought? Listen to this. Yield spread is a “bonus a lender pays to reward a mortgage broker for placing, or steering, a borrower into a higher cost loan than the borrower qualifies for” and the payment is “essentially a kick-back” (“Bans on Yield-Spread Premiums and Steering: Protecting Homeowners and Strengthening the Mortgage Market”, Nov. 5, 2007, The Center for Responsible Lending).
Both statements are so factually erroneous that it merits special attention.
I will mention briefly again that in sentence 10 the writer said the “kick-backs” paid by lenders to mortgage brokers are “fully justified”, but he didn’t know he was talking about the kick-backs when he said that. Yet in sentence 13 he argues that the kickbacks paid by lenders should be outlawed. Sentence 13 also contains the erroneous assertion that yield spread is paid on “costlier” loans.
Yield spread is paid on costly loans, cheap loans, and all loans in between. Almost all of them anyway. I do not remember a single loan I have done which did not include yield spread. I can’t imagine any circumstance in which it would be smart to exclude yield spread.
Yield spread allows mortgage brokers to provide low-cost loans. Since it is the goal of the New York Times editorial policy to promote low-cost loans, it must then embrace yield spread. A low-cost loan requires the use of yield spread. The editorial is backwards on how to accomplish low-cost loans.
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Yield spread is a payment by a lender to an originator. It is ethical for a lender to make a payment to an originator because the originator has worked for their payment.
The jobs which the originator is paid for include finding the borrower, finding the best loan for the borrower by checking with different lenders, explaining different options to the borrower, organizing the paper work for the borrower, submitting the loan application, and arguing on behalf of the borrower when the lender does not want to approve the loan.
All of these jobs performed by an ethical originator are an ethical source of the ethical payment they earn from the ethical lender who makes ethical payments to ethical originators based upon the ethical use of yield spread.
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The writer of the editorial does not define a kickback in sentence 13, but I define it as an undisclosed payment. If an undisclosed payment is the definition of a kickback, and that is a primary definition of “kickback” under RESPA, the key body of law which defines the work of mortgage brokers, then yield spread is by definition not a kickback. Yield spread is by definition not a kickback because it must be disclosed and it would be illegal if it is not disclosed.
Why does the editorial writer believe that yield spread is “the most clearly unethical form of payment” and a “kickback” even though the payment is fully disclosed?
It’s simple. He copied somebody else’s work. Yield spread, according to the Center for Responsible Lending, is “a bonus a lender pays to reward a mortgage broker for placing, or steering, a borrower into a higher cost loan than the borrower qualifies for” and “Many lenders pay this premium—essentially a kick-back to brokers“ (“Bans on Yield-Spread Premiums & Steering: Protecting Homeowners and Strengthening the Mortgage Market” Nov. 5, 2007, Center for Responsible Lending).
Do you believe the editorial writer who says yield spread is “fully justified”? Or do you believe the same editorial writer in the same editorial saying that yield spread is “the most clearly unethical form of payment” and the “reward” for “bleeding unsuspecting borrowers” and that pending legislation “would rightly make yield-spread premiums illegal”?
Does anybody think the New York Times editorial makes sense?
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The special irony of the editorial writer’s mistake is that there is an entire segment of players in mortgage origination who do receive kickbacks – if we use the definition from RESPA. All retail banks sell their loans in return for payments called “release spread premium”.
To a borrower there is no difference between a broker who earns yield spread and a bank which earns release spread. Except for one thing. MORTGAGE BROKERS ARE REQUIRED TO DISLCOSE THIS INCOME. RETAIL BANKS NEVER DISCLOSE THIS INCOME. The institutions which earn kickbacks are retail banks. Retail banks don’t disclose their income.
Which practice is more ethical? The practice of those who disclose or the practice of those who do not disclose? Which practice is more like a kickback? The practice of those who disclose or the practice of those who do not disclose?
If we define a kickback as an undisclosed payment, then retail banks are earning “unethical” kickbacks because they do not disclose their release spread premium. Yet the Times policy would shift all mortgage business to the “unethical” retail banks who hide their “kickbacks” legally (Please see the example below.).
If the editorial writer understood this basic failure in our regulation of the industry, and if he actually knew what a kickback is and how to define it, then he would have been aware that mortgage brokers are required by law to disclose more fee information than retail banks. Anybody with a basic knowledge of mortgage origination is aware of this fact. The editorial writer should apologize for getting this key industry fact backwards. And The New York Times should conduct an investigation of The Center for Responsible Lending.
Is their work paid for by major banks – the lenders that don’t disclose their fees? How could any serious academic institution butcher the facts so badly?
They must know that retail banks get kickbacks and not mortgage brokers, but if you say mortgage brokers get kickbacks enough, then the New York Times and 20 senators who don’t know what they are talking about will call for a ban on yield spread because it is “a kickback.”
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“Brokers can claim this premium (yield spread) by steering a borrower whose credit history qualifies him or her for say, a 7 percent loan, into a more expensive loan at a higher rate” (sentence 18 of the editorial).
This statement misleads the reader because it implies that yield spread is only paid if a borrower takes out a “more expensive loan”.
The obvious intention of the editorial writer was to say that mortgage brokers should provide the best loan available to their client. Mortgage brokers should not be given a greater financial reward for giving their clients a less favorable loan. The classic example of this malpractice is putting a borrower into an ARM loan with an adjustable rate when they could qualify for a fixed rate.
All good mortgage brokers agree that mortgage brokers should be required to give their customers the best loan available. Good mortgage brokers are not only willing to live by this rule, they want that rule. Mortgage brokers should provide their clients with the best loan available. We should banish brokers who do not follow this rule.
In the editorial, the writer falsely claimed that yield spread is the reason mortgage brokers move clients to more expensive loans. If he had understood yield spread and the mortgage business, he would have stated that brokers should not be paid a greater amount of yield spread for putting their clients in to a lesser loan – a loan that costs more.
I restate my opinion again on the matter: There is nothing wrong with being paid with yield spread. I always advise clients to pay for their mortgage with yield spread. Always. I am proud of that record.
The editorial writer wanted to say that there is something wrong with being paid more yield spread for a lesser loan. Any law or regulation which enforced that sentiment is a rule which good mortgage brokers embrace. If the New York Times editorial writer had understood yield spread, he could have reasonably made such an argument, and it would have made sense. In this case he is senseless and so is his newspaper. And that’s just the beginning.
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“A House bill introduced by Representative Barney Frank, a Democrat of Massachusetts, would rightly make yield-spread premiums illegal.” (Sentence 22 of the editorial).
Obviously, at this point of my story, any person in my industry is both outraged at Rep. Frank’s House bill and they are on the floor laughing hysterically at the comedic intersection of errors shown here in the Barney Frank, Center for Responsible Lending, New York Times ménage-a-trois.
While mortgage brokers have taken a very heavy beating from the press, there are millions and millions of mortgage broker customers who both like their mortgage broker and know their broker got them a great deal – a much better deal than they would have gotten from a retail bank. When a friend needs a loan, they refer that friend to their mortgage broker.
I encourage all mortgage brokers and all happy customers of mortgage brokers to contact Barney Frank, The Center for Housing Studies, and The York Times public editor:
public@nytimes.com,nytnews@nytimes.com,letters@nytimes.com,kathleen.day@responsiblelending.org,ginna.green@responsiblelending.org,charlene.crowell@responsiblelending.org, info@barneyfrank.net
Please use the following message in the subject box: Ban Yield Spread and Die Yuppie Scum Eater.
If you want to include a short body in the email, please write:
“My mortgage broker paid for my loan with yield spread and it totally turns me on.”
If you want to include a long-winded body in the email, please write: “My mortgage broker gave me a great deal on a cheap mortgage paid for with yield spread. I love yield spread. It’s the bank’s money. It’s not my money. Like my broker said: Let the bank pay for the loan. I don’t want to pay for it. And did I hear somebody wants to ban yield spread? Where in the hell did that come from? Mike says if you ban yield spread you will bankrupt the mortgage-broker industry. That isn’t good for consumers. You will force every mortgage borrower into the hands of a dumb, slow and expensive retail bank. And did you know retail banks jack up their interest rates and charge hidden fees and get huge kicks backs? Yep, that’s right. They jack up the customer’s interest rate and secretly earn kickbacks and that’s the biggest part of their income. Predatory? Yes. And perfectly acceptable under existing lending laws. And they don’t whisper a word to boo about it. They never tell anybody. Did The New York Times mean to encourage kickbacks when they called for a ban on yield spread? Cause I don’t get it.”
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The editorial writer and The New York Times and the Center for Responsible Lending will want to reconsider their opinion about Rep. Frank’s bill in light of the new information provided here. If there is still in fact such a bill, it would only have been written by a person who does not understand what yield spread is. It might have been written by a person who read the New York Times editorial and took it seriously.
As it so happens, a group of important senators have written Fed Chairman Ben Bernanke. And do you know what they asked for? They asked for a ban on yield spread.
Here is the heart of the senators’ December 24th 2009 letter – which makes extensive use of the Times editorial:
“The Times concluded that ‘The first step must be to outlaw the kickbacks that lenders pay brokers for steering clients into costlier loans.’ The editorial went on to say that ‘the most clearly unethical form of payment is the so-called yield spread premium.” … it is difficult to overstate the damage that has been done by these hidden steering payments … yield-spread premiums … were the enablers for the propagation of destructive sub-prime mortgage-backed securities and collateralized debt obligations that brought Wall Street to its knees and devastated our economy. … the Federal Reserve must end this dangerous practice.”
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Yield spread is a payment made by a lender to an originator. The payment of yield spread is both ethical and borrower-friendly and smart and the choice that all borrows should choose when paying for their new mortgage.
The existence of yield spread does not create an unfair advantage for a mortgage broker. Dishonesty creates an unfair advantage. Any borrower can easily defeat a dishonest broker: He calls somebody else and asks for a second opinion.
“What will you do this loan for and how much will it cost?” That’s all we need to do to stop bad brokers, although I have zero qualms about more serious regulation. Banning yield spread would destroy mortgage brokers and their ability to provide good loans.
Legislation should not outlaw yield spread payments from a lender to an originator. Those concerned about predatory mortgage brokers should use some other method to police the industry. I have some thoughts about how it can be done correctly.
If legislation outlaws yield spread, it will bankrupt all mortgage brokers and force all mortgage business to retail banks. The retail banks will continue to charge their version of yield spread, and they will continue to keep knowledge of the charge to themselves – meaning the people who earn kickbacks will be aided by the Times policy.
It is also true that borrowers will lose their best mortgage resource. Brokers beat the pricing of retail banks all the time. Why do they provide better mortgage terms? Mortgage brokers are smarter, faster, better, cheaper. The Times policy is against mortgage lending which is smarter, faster, better, cheaper.
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Do you want to see some academic research on yield spread? Please see the paper titled “Do Borrowers Make Rational Choices on Points and Refinancing?” by Yan Chang and Abdullah Yavas.
A press report on this paper says that 1.5 percent of borrowers who used yield spread to pay for their loan would have been better off using points. If you told the New York Times editorial writer that his ban on yield spread would force 98.5% of borrowers to choose a more expensive and less affordable loan paid for with points, he would have looked at you as if you had said a unicorn is green with a white horn. Why?
He didn’t have the slightest idea that there are only two choices for the borrower: pay with points or pay with yield spread. There is nothing else.
In other words, in almost all cases, the use of yield spread is not only ethical, the use of yield spread is smart and cheap and the best choice for consumers.
In my personal practice of mortgage brokering, I always instruct borrowers to pay my fees and all close costs with yield spread when possible. I am proud of making a point of always providing that intelligent advice to all of my customers.
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The New York Times has committed grave errors in its April 10 2009 editorial titled “Predatory Brokers”. Please retract the entire editorial. Please issue an apology to mortgage brokers. And please provide an op-ed space to explain how our work works.
If borrowers and lawmakers depend upon your editorial, they will be mislead, confused, deceived. We can already see that 20 senators have called for a change in regulation based upon your errors.
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My opinion is that your massive errors in this editorial prove your prejudice against free markets. Any sensible commentator would have asked themselves: How should brokers get paid? You wouldn’t ask that question if you think it is immoral for people to be paid for their work. I admit the charge is broad, but I back up the charge with the factual falsehoods of your editorial against yield spread and the work of mortgage brokers.
You have destroyed your credibility on this subject.
Sincerely,
Michael David White
A Mortgage Broker Who Proudly Charges Lenders Yield Spread To Pay for His Clients’ Mortgages
CEO: The New Mortgage Company, Blogger: Implode and NewObservations.net, Chicago Illinois
Further to my comment of 9 August 2016, unlike the old Bank Rate system with its high interest rates, Quantitative…
Comment by none on 10 February 2010:
You are missing the most common reason why a borrower would want a loan with a yield spread premium. The borrower does not have the additional cash available to close the loan without it.
Comment by Steve Dibert on 10 February 2010:
Good article but your late for the battle. This is like a Confederate General showing up at Gettysburg ready to fight after Lee surrendered at Appomattax. This NYT editorial ran in April and you’re just now getting around to writing a response? You should have wrote this 10 months ago.
Comment by MichaelWhite on 10 February 2010:
Hello Steve, the editorial is old, but the letter from the senators was sent late in December. it’s obviously critical that mortgage brokers argue forcefully for the use of yield spread. thanks for your comment. mdw
Comment by Nonehere on 11 February 2010:
Sorry Michael but brokers are not critical to the mortgage industry and will soon be gone. The mortgage business was nationalized a year ago and will never be back. So I would suggest you go find a new career because the Feds only want banks originating home loans.
Comment by MichaelWhite on 11 February 2010:
Hello Nonehere, You may be right, but we are not dead yet. Thanks for your comment. mdw
Comment by S John Murray on 11 February 2010:
You are 100% correct. I originated my first no point no close back in 1986 and I have since originated over 98% of my loans with that program. Even if a client decides to pay the closing costs out of pocket and not roll them into the loan amount, the break even is at least a five year period…and most do not ever keep their mortgage for that length of time…refinance cycles happen every 5-6 years as the Fed controls monetary policy to put the breaks on inflation and an over heated economy by driving up rates…only to over do it and have to cut rates again to bring us back from a recession. I have seen this cycle repeat again and again with refi booms in ‘86-‘87, ‘92-‘93 , ‘97-‘98 ,‘02-’03 ,and now again as the Fed starting buying up mortgage backed securities in Nov of 08 …a program that is sadly ending next month as the last of the $1.25T is spent. I have over 8000 very happy clients that never paid a dime to finance their mortgages. So lets do some math.. using an average cost savings of $6000 in needless closing costs…if the yield spread premium did not exist , my clients would have needlessly spent over $48,000,000 in fees. Over the last twenty five years, even if they remained in their homes for over the five year time frame, there has always been a point in time, within that 60 month pay back period that they could again refinance and get an even lower rate than if they had paid closing costs in that previous cycle 4-5 years prior when the Fed had cut rates. I cannot fathom the amount of wasted consumer dollars that would have been pocketed by the banks in needless points and closing costs if yield spread premium did not exist….and believe me when I tell you the large banks cannot wait until it is gone.
Comment by MichaelWhite on 11 February 2010:
Hello S John, mortgage brokers must openly and honestly and proudly argue for the use of yield spread. thanks for your comment. mdw
Comment by Ex-Loan Guy on 11 February 2010:
This is funny! I spent 8 years in the loan biz before returning to the corporate world. I feel I have a pretty strong grasp of the mortgage industry and still tend to stay updated on current trends, ect. Yield spread is a scam for the borrower. It behooves the broker to steer the borrower into a higher interest rate since it put’s more profit in his/her pockets. Plain and simple- the higher the rate, the higher the yield spread, do not let anyone tell you different.
Comment by Steve Dibert on 11 February 2010:
Michael,
Your business must be way down if you have time to argue with every blogger who criticizes your position.
Face it YSP is gone for brokers and that’s because of NAMB. When this issue became front page news in November of 2007, NAMB did nothing. It wasn’t until a broker published Barney Frank’s personal phone number on a blog that NAMB did anything. Frank got 3,000 calls from brokers calling him a fudge packing communist which resulted in him calling NAMB and that is the only reason NAMB leadership got involved. Do you honestly think congress or the US Treasury care about what brokers think? If you do, you’re living in a fantasy world. Again, the battle was already fought and the brokers lost. It’s time to move on.
Comment by Angela on 11 February 2010:
Why doesn’t anyone talk about the the 3 major credit bureaurs selling information to lead/telemarketers/social engineers/countrywide/BofA. . .? You mean they made money a 2nd time selling my clients soc. sec. # and credit score and phone#?
As a mortgage broker I would pull a 3 file merge for real estate purposes. . . with in 20 minutes (yes, I said 20 minutes) some guy from another state is calling my client to tell them not to do a loan with me and that they are now doing their loan .. . do you think the guy in Texas cares about my neighbor in Oregon? Yea, Yea, Yea, they can opt out. . but if they haven’t already do you tell them to come back in 30 days? No! You say preditory? I had quit a few clients totally harassed!!! now they can get into a bigger house stated/100%/no money down/seller paid closing . and now pick you pay. . . they liked that pick your pay. . . I never did one. . lost a client to someone who would do it. . 1 year later client was on the front page of our local newspaper loosing her home. . do you think the guy in Texas really gives a hoot?
Comment by MichaelWhite on 11 February 2010:
To Ex-Loan Guy: The article openly describes yield spread as a payment made to a broker for charging a higher rate. If you think there is something wrong with that, you have two problems: You can’t read and you can’t think.
To Steve Dibert: If the senators are just getting around to contacting the Fed in the last month, then the battle cannot be done.
Comment by Paul Deschaine on 11 February 2010:
I am a Mortgage Broker and proud of it. I have worked for banks that paid me “Overage” and banks still pay “Overage”. I now am paid by lenders what is called “Yield Spread”. Same F…ing thing just a play with words for banks to hide more fees. The same banks that have this country by the throat with 30% rates on credit cards but hide as credit card companies. The idiot that wrote the article gets paid a “salerie” that comes from the income generated from a news paper his company sells. If we get rid of his salerie the paper should than be able to sell it’s product to it’s customer for alot less but won’t. As a Mortgage Broker, my income is on the HUD for all to see. Especially my customers. Repeat Customers. Banks will never show thier income on the HUD because more fees and more income means larger political contributions. Lets truly dig into the pockets of these senators and see who paid for the gold ink on this letter. We don’t need to waste time with Dodd. Paul Deschaine, South Portland, Maine.
Comment by MichaelWhite on 11 February 2010:
Hello Paul don’t forget a ban on yield spread will end global warming. thanks for your comment. mdw
Comment by Rob Harrington on 11 February 2010:
I would rather the media talk about systemic fraud and predatory lending by the OTS banks that are now defunct like WAMU, Indymac, Countrywide, World Savings….
Comment by MichaelWhite on 11 February 2010:
I want you to do a thought exercise Rob. Pretend a fool writes an editorial for the New York Times. Then a foolish senator believes the foolish editorial writer. They pass a regulation outlawing your profession. Now you are out of a job Rob. What are you going to do Rob? How does it feel? Are you good with it?
I would rather you talk about the post. Thanks for your comment. mdw
Comment by Jeremiah M. Wean on 12 February 2010:
The ban on Yield Spread Premium is only the beginning. The change to not allowing the compensation to be based on loan terms, ie. Loan Amount, interest rate, etc – means a flat fee. A flat fee which is negotiated up front with the lender, not on a loan by loan basis, but on a year or longer time frame. Every loan must be charged the flat fee, the fee cannot go up and cannot go down. This will hurt two types of customers: Those with small loan amounts, and those with difficult loan scenarios.
I got my comment in to the Fed prior to the submission deadline, and called on my Senators to help in the fight
Comment by marco a mendoza on 14 February 2010:
The Real Problem were those bad loans that the banks dising Like option arms,no income no docs,2,3and 5 years fix interes only etc, all this loans create this problems ,and they were made by all this banks.yield spread don’t have anything to do with this proble media and big banking interes just want to shift the blame from the real problem to aboid resposability.
Comment by marco a mendoza on 14 February 2010:
The Real Problem were those bad loans that the banks dising Like option arms,no income no docs,2,3and 5 years fix interes only etc, all this loans create this problems ,and they were made by all this banks.yield spread don’t have anything to do with this problem.The media and big banking interes just want to shift the blame from the real problem, to aboid resposability.
Comment by Mike A on 15 February 2010:
Great Job Mike! You hit the nail on the head. Consumers deserve a choice and the no-cost loan beats paying closing costs most of the time. YSP is a good thing for the consumer. If brokers can’t offer YSP we will have to work for a bank that hides everything and charges higher fees to the consumer. The end result is everyone pays more.
Comment by Christopher on 15 February 2010:
The reality is that the hard costs are for the most part the same from borrower to borrower yet the only difference is the YSP is just an additional charge OR there’s a minimium YSP required by the broker shop. I suspect many brokers are more than willing to sneak in a 3 yr hard ppp they figure their borrower will be indifferent.
In a perfect world brokers/lender would only be able to charge YSP or hard costs, but not both. I can only imagine how the these guys missed the old days earning 3 pts in YSP off a neg-am loan.
Comment by Angela on 15 February 2010:
I think the day is coming when there is Sykpe at the closing table.
I know allot of you guys buy leads and make a living from that , however, how come once you have doc’s on the way to title no one can get a hold of you? Client at the closing table with our local title and escrow gal and guess what your buyer/borrower/client has questions. . . Hmmmmm . can’t get ahold of you. . Hmmmmm You were shoving that client all the way to the closing table and now what ??Hmmmmm What does YSP or Yield Spread Premimum mean? Hmmmmmmm. . you mean they could have got a better rate and no one told them. . .?? Only the real abusers don’t show. . . I guess they would feel kind of funny with 3 points on the back. . Hmmmmm . . I say if you are going to do a long way away loan in another state to which you do not reside. . you either fly in to sign those loan doc’s with your client or you take 2 of those back points and pay legal council to explain. . . I have heard some amazing horror stories from my local title companies. . . Shame. . .
Comment by Angela on 15 February 2010:
Don’t miss understand me. There is nothing wrong with YSP..
Yes, if used correctly it can be of great benefit for the client.
It’s the abuse that comes when pricing loans and the justifcation that comes when the loan originator locks his/her clients loan.
There is something to say for
“Do onto others like you would have them do onto you.”
But then again “YOU CAN’T TEACH ETHICS OR REGULATE HONESTY!”
Comment by former mtg guy on 18 February 2010:
I was in the industry for over 20 years and hung it up in 2005. It was then I could see what was happening and I wanted no part of it. I told all my clients not to buy, but to sell and then rent for awhile….and I never looked back. Of course everyone thought I was crazy and I became somewhat alienated from former friends just because of the belief there was a bubble of astronomical proportions. You are correct Michael, the publc is ignorant about the terminology and the article presents even more misinformation to an already wary public. We are literally surrounded by lies and the attempt to impose blame for the current crisis on a group of salespeople calling themselves ‘mortgage brokers’. We were groomed to meet the task of being scapegoat. They provided us with the loan product and then blamed US for what happened when everything went sideways. It HAD to happen…it is all in the plan. Believe the comment that states all brokers will eventually be gone and even most mortgage banks will be cut off entirely save the few owned by major banks. It is something I predicted back in 2005. We were set up to take the fall and they knew it would be easy to get rid of us by simply cutting off the credit lines to the wholesale sector because of ‘risk’. Look, we are headed for a depression and the decline is slow and painful for the majority but it is clearly not over. I have been told that prices may drop another 50% or MORE in the next 2 years! Real incomes are on the decline due to increasing inflation and this is just the beginning. Quantitative easing is the culprit – debasing the dollar. It is happening all the time now and the fed’s printing presses are working overtime… Hyperinflation will sweep our country in the coming months and few people see it coming. The most substantial Black Swan in recent history following the 9/11 ‘terrorist’ attack our own government had knowledge of and participated in. This is a master plan to keep the public enslaved but there is a way to fix the tangled web that has been created. Teach yourself to learn why things are the way they are. Educate your mind and discover the truth. Michael, you have done a tremendous job of informing the public of the truth about yield spreads and what it really means when they say they want them outlawed.
Please visit http://www.edrivera.com and learn the truth about the system we live under right now. It will help you understand what it takes to really be free by pointing to the truth about government.
Believe it or not, the liar liar loans were designed to implode and we were simply the ‘mules’ that transported the goods.
Comment by former mtg guy on 18 February 2010:
By the way, did you know that mortgage brokers in Australia get paid kind of like insurance brokers do here? YES! If the borrower pays on time for 12 consecutive months, you get your trailer income which cab become quite substantial over time. It works well because the broker stays in touch with his/her clients and has incentive to make sure the client does NOT default. At the close of escrow, only .25 to .375 is paid out to the broker so the ability to make a killing at the close is completely taken away. This forces ethical behavior and builds long term steady clientele…an annuity of sorts which becomes a retirement income source too. It is just too bad the people that set up our system had other things in mind when they did. We should promote this type of structure and create our own niche. All we need is a money printing press like the fed has…..
Comment by Angela on 18 February 2010:
Comment by former mtg guy on 18 February 2010:
Believe it or not, the liar liar loans were designed to implode and we were simply the ‘mules’ that transported the goods.
Well said!
I knew we were in trouble when the W-2 wage earner stated income, 100% LTV, seller pay all closing costs. . and oh yeah, now “Pick your pay opt arm” Pick your payment? How about the NINANJ product, which made it possible for the gardner to buy that 500K house in Southern Calif….(no offense to the gardner really)and trust me there were realtors that wanted that client in a bigger house too. . .
‘YOU CAN’T TEACH ETHICS OR REGULATE HONESTY’
‘SKYPE’ COMING TO A TITLE COMPANY NEAR YOU!
Comment by MichaelWhite on 19 February 2010:
Comment by marco a mendoza on 14 February 2010: “The Real Problem were those bad loans.” MDW replies: We had a serious criminal enterprise operating during the credit / property boom. Thanks for your comment.
Comment by Mike A on 15 February 2010: “YSP is a good thing for the consumer.” MDW replies: yield spread is great for the consumer. Thanks for your comment.
Comment by Angela on 15 February 2010: “Only the real abusers don’t show.” MDW replies: We all would be smart to point friends and family in the direction of honest mortgage brokers. There’s a ton of them out there.
Comment by former mtg guy on 18 February 2010: “By the way, did you know that mortgage brokers in Australia get paid kind of like insurance brokers do here.” MDW replies: It would be great to have long-term incentives for the loans we originate.
Comment by Angela on 21 February 2010:
Hi Michael, Don’t you think that if we got back to lending across our desk we would have saved our industry? Do you or have you ever bought a trigger lead from the bureaus? I have always had a real problem (not losing a client through this) but my client being harrassed after I pull his credit for real estate purposes. I believe that the big lenders (Bank of Countrywide) would have sweat shops (so to speak) set up with telemarketers/social engineers calling each and everyone that inquired into a real estate loan and prayed on them. I hate to say, these were my neighbors and now they have lost their home because of preditory lenders like the above. . .
I would love it when my client would be at the Gym and someone would be telling him they were buying a house and what rate they were getting and my client would ask “Why are you paying such a high rate?” . guess what? they were now my client. . we need to get back to lending across our desk where we see, live, eat attend functions in our community with these clients. . if you are writing bad loans you will not last long . . . referrals are everything !
Comment by MichaelWhite on 22 February 2010:
Hello Angela, I think it’s smart for consumers to use mortgage brokers in their neighborhood. The broker will do a good job or the word will get around. Thanks for your comment. mdw