Good for the ‘fat cats’
New regulation will give the big banks a mortgage-financing edge
President Obama made it very clear Dec. 13 on 60 Minutes that he and most Americans are fed up with the “fat-cat bankers” who essentially caused the mortgage meltdown and world financial crisis. On Dec. 16 he chaired a conference with those same fat cats to implore them to lend more money to help small businesses.
But is he aware that the federal Housing and Urban Development agency has proposed new regulations that will dramatically harm the consumer, close thousands of small mortgage businesses, and provide those same banker fat cats with a monopoly on the mortgage industry?
I’m the owner of a small mortgage company here in Chico, California First Mortgage. I have a perfect legal and regulatory record over my 32 years in mortgages, yet I will probably be one of those closed down by these new HUD regulations. Furthermore, you will end up overpaying thousands of dollars every time you buy or refinance.
For example, on Dec. 11, one of the four big banks quoted its 30-year fixed-rate mortgage at 5.00 percent with .875 “point” (points are a form of pre-paid interest). For 1 point my rate was 4.625 percent.
Take a $250,000 loan: We earn a total 1.375-point fee, and currently it can come from upfront points, from the lender as a rebate, or from a combination of the two. For this 4.625-percent loan the borrower pays 1 point and the lender pays me a .375-point rebate. But HUD’s new Regulation Z mandates that mortgage brokers can charge only an upfront fee or a rebate, also known as a YSP (Yield Spread Premium)—making the loan I described illegal!
On Friday I also offered a 5.00-percent loan with zero points and a 1-point credit to the closing costs (from the 2.375-point rebate). So on a $250,000 loan the savings total $4,687 over the bank’s loan. But that loan becomes impossible too, because of the new regulations.
Basically, I could offer just one option: 4.50 percent with a total 1.50 upfront points (.125 to the lender and 1.375 to my company). That’s a great loan, but what if you wanted fewer or no points?
These severe limitations on the free marketplace will destroy the mortgage business and give the big banks a complete monopoly. And you will be paying .50 percent more and higher on your future purchases and refinances.