Mortgage brokering will be on the decline from now on. As of April 1, 2011 any major lending institution that does not have access to aÂ bank lineÂ will be effected by the recentÂ changes in the law with regard to loan originator compensation. The capping of yield spread will mean big trouble for mortgage brokerage companies trying to stay afloat.
Basically, a company can no longer pay a loan broker a yield-spread premium, which is tied to the interest rate of the mortgage.Â The fee earned will be the same for each and every interest rate offered. This idea was introduced for the consumerâ€™s protection.
The problem with this rule change is thatÂ mortgage brokersÂ as companies are no longer allowed to charge application fee which is a standard and acceptable fee to cover overhead.Â (My application fee is $595.)
Personally I am unaffected by the rule change because my source has the ability to â€œBankâ€ but I hate to see another step taken against mortgage brokers by Washington.
As I mentioned in previous posts Fannie Mae is expected to come to an end in about 6 years. These steps will all improve the importance of the local community bank to lend in the communities theyÂ are locatedÂ in. (Which is something they are supposed to do in the first place.)
I expect to see all sorts of interesting new loan products on the horizon as lendingÂ becomes moreÂ privatized and new players emerge on the scene. Stated loans, foreign national loans, and adjustable rate mortgages will probably come back as well.