Just when we think changing financing terms at the closing table doesnt exist anymore listen to this! My husband is a loan officer and he received

Asked by Joanna Jensen, Livermore, CA Thu Feb 16, 2012

Last week from one of his previous clients who just purchased a home.

Apparently, the broker/loan officer told the buyer one thing but did another. Additionally at the closing table the loan was different than the disclosure... This isnt supposed to happen.

This client ended up getting an FHA loan with built in mortgage insurance even though she didnt need it.

When a loan officer sells certain products they make more money. My husband said the loan officer ended up making about $16,000 comission on this sale!

You have to be very careful and ask a lot of questions. However it is hard to get around pure misinformation or even fraud.

If you feel your being pressured into a loan you can afford or dont want the terms, you may be better off forcing the loan officer to talk to his manager to find out why the terms are different.

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12
Elliott R. O…, Agent, McLean, VA
Fri Mar 2, 2012
Joanna, you are assuming the higher rate the LO charges the more money he gets. It's not that way but it was before April 1st, 2011 but that was not a bad thing either.

On April 1, 2011, the new Dodd-Frank Loan Officer Compensation Rules (Reg Z) imposed by the Federal Reserve took effect. The intent of Reg Z is to regulate loan officer compensation and introduce new “anti-steering” provisions. Reg Z changes how all loan originators (not just mortgage brokers) are paid for originating closed-end loans secured by the borrower’s dwelling.

Prohibitions under the Reg Z amendment include:

* Basing loan officer compensation on loan terms or conditions other than loan amount
*Compensation paid from both the consumer and the lender to the loan officer
***Steering the borrower into a loan that is not deemed in their best interest but results in higher compensation to the loan originator

Historically, mortgage brokers and their sponsored originators received compensation from the fees they charged the borrower and from the lender funding the loan (yield spread). The compensation from the lender increased in direct proportion to the magnitude of the interest rate locked. For example, a 30-year 4.75% loan paid the originator less than would the same loan locked at 5.00%. Skilled mortgage originators were able to balance the two income streams to “custom-fit” the loan to the client’s needs. In the case of a rate-sensitive client, the lowest rate could be locked resulting in little or no lender compensation, while the borrower fees adequately paid the originator. Conversely, the cash-strapped first-time buyer could close with a slightly higher rate which allowed for lender compensation to pay the originator while minimizing closing costs to the borrower. Under the new Fed Rule, this art form has been deemed illegal.

The perception was that the yield spread premium was a hidden under-the-table payment that went largely undetected and caused borrowers to be “steered” into high rate programs. On January 1, 2010, Reg Z changes mandated that the yield spread be clearly identified in all loan applications via the Good Faith Estimate and be paid directly to the borrower. Since January 1, 2010 no loan originator has received one cent of yield spread premium. With the imposition of the new Fed Rule, the yield spread premium has, effectively, been taken away from the borrower and returned to the lender.

The Fed Rule mandates that loan originators who select lender-paid compensation for any transaction must be paid no more and no less than a previously selected percentage. This rate (typically 2%-2.5%) is determined through an amended agreement to the brokers/lenders contract. Once the application has been signed by the borrower, no changes to the originator compensation are allowed. When the inevitable unforeseen event (read costly) happens as the loan progresses through underwriting to closing, the increased costs must be paid by the lender. The borrower cannot be charged additional fees (e.g. lock expirations, appraisal reviews etc.) and the originator’s compensation is guaranteed. An effect of this rule is the lenders will have to anticipate these events and incorporate them into their future rate structures. Who suffers? The obvious answer is the consumer.

Conversely, the transaction can be submitted to the lender as a borrower paid loan. Here is where the damage done by the Fed Rule reaches its most insidious depth. Traditionally, the loan revenue would flow to the mortgage broker who would then cut a check to the loan officer for their contractual percentage and fees. The Fed Rule absolutely prohibits the loan officer from being paid by the broker in a lender paid scenario. The loan officer cannot be compensated unless they can collect payment directly from the borrower at closing, which transcends the bounds of professionalism!

Also, loan officers must be paid hourly or salaried and cannot participate in any loan revenue bonus programs. Small mortgage brokers across the country will no longer be able to retain loan officers unless they have been exceptional producers who must be retained with salaries or attractive hourly packages.

So this is why there is literally no way to for a loan officer to benefit from charging the client a higher rate. Any YSP that results in higher rate must go to the client as a credit to offset their closing costs. That's it.

These days good loan officers let their clients choose their rate. I show my clients my rate sheet for their scenario so they can pick. http://www.trulia.com/blog/elliott_r_oliva/2011/09/how_to_pi…

Anyhow, I hope this clears things up so you have a better understanding of how things work these days. In my opinion the loan officer you were speaking of is just incompetent and did a terrible job of disclosing. He sounds like he had no clue what he was doing and more importantly didn't care.
0 votes
Bob Willett, , Sacramento, CA
Fri Mar 2, 2012
If a loan officer is working for a legitimate lender who follows the rules then they will make the same money regardless of loan type, rate, margin, etc. It’s the law, and if you follow the law then there will not be a difference. Of course the mortgage company may be making lots more on the higher margin, but that’s another story.

Of course that is assuming a lot – and you know what they say about assuming things. The fact is an independent broker can have several different wholesale agreements that pay at different levels. I know one mortgage broker who has one agreement that is just for FHA loans that pays about 3.5 points, another for just Fannie/Freddie products at 2 points, etc. It’s completely within the law. I can’t do that because I work for a mortgage banker, but the independent broker with no employees does have that option.

I am a little surprised by a 6 point margin; that’s more likely a marginal borrower where the loan had to be placed with an alternative loan lender.
Web Reference:  http://www.SacRELender.com
0 votes
Joanna Jensen, Other Pro, Livermore, CA
Fri Mar 2, 2012
Sorry,
each outfit determines how they pay their agents, correct. Not all shops pay the same way.

Brokers have to disclose ysp bankers do not, they never disclose their ysp.

So, what determines the margin?

If you sell a person a loan with a 6% margin vs a 2.25 typical margin that influences your ysp correct doesnt that then influence your pay.
0 votes
Joanna Jensen, Other Pro, Livermore, CA
Fri Mar 2, 2012
So,
this is exactly what happened to my client.

They got a loan with 6% margin. Are you telling me the l/o didnt get paid the same as if it was a 2.25 margin?

The margin is what indicate the ysp right??? So the higher the margin higer the ysp higher your commission.
am I wrong. from what I hear no.

brokers and bankers get paid differently.

there are some shops that only have specific products others have more products.

Who determines the margin?
0 votes
Gregorio Den…, , San Diego, CA
Wed Feb 22, 2012
"You need to talk to some of the wholesale reps I know; they will tell you about the shady operations that they have cut-off for doing things that would be illegal under the old laws"
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I believe that makes my point. There is no wholesale lender that is going to fund a mortgage where a loan officer get's paid based on the type of loan or the rate. We will have to agree to disagree on this one. No one is arguing about fraud, that's another topic. What I protest is that Joanna is stating as a matter of fact that you, I and every loan officer gets paid more based on loan type and it's not true.
0 votes
Bob Willett, , Sacramento, CA
Wed Feb 22, 2012
Sorry Gregorio, but your statement is based on the loan officer actually following the law. Have you seen the statistics on loan fraud? Believe it or not it's up! You need to talk to some of the wholesale reps I know; they will tell you about the shady operations that they have cut-off for doing things that would be illegal under the old laws - let alone the new ones. The DRE doesn’t have the staff or resources to do even a bad job of enforcement, so the crooks just carry-on until they get caught. I lost a loan a few months ago to an unlicensed loan broker who was also the real estate agent operating under a restricted DRE license. It happens.

You sound like a straight shooter, and the company you work for (like the company I work for) would probably never consider bending the rules – let alone ignoring them all together. Unfortunately there are still a lot of companies and loan officers out there that are not of that mindset. You should support and get involved with your local California Association of Mortgage Professionals (CAMP) chapter and add to our voices. We need to convince the politicians that adding more laws and regulations will only hurt the legitimate businesses (and their customers) and give more cover to the crooks!
Web Reference:  http://www.SacRELender.com
0 votes
Gregorio Den…, , San Diego, CA
Wed Feb 22, 2012
Joanna, unfortunately I don't think you are as up on things as you should be.

You say:
"I may not know all of the details of the loan but I do know that different loans pay differently."
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I would love for you to back that statement up.

I also don't see how anyone can accidentally be put info an FHA mortgage. FHA requires an additional stack of disclosures that MUST be signed or it absolutely cannot fund. An FHA appraisal has to be done as well. Unless the borrowers are blind, deaf and dumb they cannot possible close on an FHA mortgage without knowing.

I am not defending all loan officers because I know there are bad ones; what I am telling you is that your statement is not true. Loan officers do not get paid differently based on loan type.
0 votes
Joanna Jensen, Other Pro, Livermore, CA
Wed Feb 22, 2012
Hi Gregory,

Client put 20% down and didnt need an FHA loan.

The problem is different loans do pay differently we all know it. However consumers dont know it.

I work for an attorney and I help home owners who are loosing their homes.

Some loan offers are 100% above board and some are not just like any type of sales.

I remember a loan officer I used to sit by a few years back. he would actually laugh about what types of points and fees he was able to charge his clients. i thought that was horrible!

My husband has been doing loans for 25 years. His client called him because she bought a home out of the area in January and she already wants to refi out of the loan this guy put her in. Even with all of the laws we have some sales people find ways around them, no matter what industry. Not just loan officers, but every type of sales, attorneys, dentists.

I may not know all of the details of the loan but I do know that different loans pay differently. Also, bankers dont have to disclose yield spread premiums and brokers do.

I thinks when a person is shopping for a loan, weather it is a car loan, home loan any type of loan we should know what the fees are and how we are being charged. Full disclosure and transparency.

Just with the neg am loans some loan officers explained them some didnt. for some clients they were a good tool if they new how to use them but for a home owner who could not afford the fully amortized loan payment that was an illegal loan.
0 votes
Gregorio Den…, , San Diego, CA
Tue Feb 21, 2012
"When a loan officer sells certain products they make more money. "
----

Well I don't know what happened in your situation, but I can tell you that what you said is absolutely not true. A loan officer's compensation since April 6, 2011 has nothing to do with the type of loan they put you in or the interest rate you receive. Again, I am not saying that something fishy didn't happen, what I am saying is that it could not possibly have had anything to do with the loan type.

Maybe if you provide more information on what happened someone could shed some light on it or steer you to the proper place to report it. All 30 year FHA loans have mortgage insurance so if they were expecting otherwise that would be a huge miscommunication.
Web Reference:  http://WeFixRates.Com
0 votes
Elliott R. O…, Agent, McLean, VA
Tue Feb 21, 2012
I hope this guy is not allowed to originate loans much longer if he is steering clients to loan programs they don't need. It's because of guys like that our industry keeps getting inundated with pointless and ineffective regulation.
0 votes
Bob Georgiou, Agent, Danville, CA
Tue Feb 21, 2012
Joanna,

Pretty sure that the buyer, if they have closed can report the mortgage broker to the state or feds and get relief... SERIOUS relief.

If the buyers let people do this nothing will change.
Web Reference:  http://bob2sell.com
0 votes
Phil Rotondo, Agent, Melbourne, FL
Fri Feb 17, 2012
Joanna;
Respectfully suggest that you blog this.
Web Reference:  http://www.321property.com
0 votes
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