Posts Tagged ‘mortgage brokers’

Today, at 10:02pm, Governor Micheal Easley quietly signed North Carolina house bill 2188 into law. The major purpose of this law was to change how lenders that service mortgages are supposed to communicate additional charges to their customers. However, a small surprise got slipped in to the bill… surprising huh?

SECTION 3.  G.S. 53?243.11 is amended by adding a new subdivision to read:

“(16)   In connection with the brokering or making of a rate?spread home loan as defined under G.S. 24?1.1F, no lender shall provide nor shall any broker receive any compensation that changes based on the terms of the loan. This subdivision shall not prohibit compensation based on the principal balance of the loan.“

This is the last item they added. You can see it for yourself at http://www.ncleg.net/Sessions/2007/Bills/House/HTML/H2188v5.html

What does this mean? According to this, and the way I read it, a mortgage broker can charge an origination fee (which would be “based on the principal balance of the loan”); however, this seems to call into question the ability for a mortgage broker to make any money on the mark up of wholesale mortgage rates to retail. This could easily fall into the first prohibited category which is “based on the terms of the loan.”

If you are thinking that is good news, you are sadly mistaken! This is not good at all. And I am not talking about for just brokers. I am talking about the reprocussions this will have on consumers and the overall housing market.

You see, mortgage brokers act much like the typical lender. They get the mortgage rates at a wholesale discount and then sell it at a retail price. That’s not a “bad” thing. The benefits to the public is that the retail pricing is not set in stone, so that flexibility allows the market to be competitive. But if this is taken away, they only way a broker can make money is to charge higher upfront fees such as origination and application fees. While these are normal for any loan, the fact that a broker will have to charge 2 points instead of 1 makes it appear less attractive, even if the rate is now a “wholesale” rate.

The ironic part is that lenders and banks will still be able to make money on the wholesale to retail spread. Only mortgage brokers have to disclose the wholesale profit they make. Lenders don’t… it’s not required by law. Why? The argument is that brokers know up front how much they will make, while lenders must sell the loan to another party (such as Fannie Mae) before they realize any additional profit. That profit may be higher or lower than anticipated when they actually sell, so there is no way to nail down an exact amount to disclose. Of course, law makers could require they provide the client with a range of profit they anticipate making, but no, only brokers are required to show this profit. As such, this profit has become demonized and mortgage brokers have been slammed as greedy bastards looking out for only themselves.

So 2 things here irritate me..

the double standard that provide banks and lenders an unfair advantage in what should be a competitive market and literally puts extreme limits on what brokers can make.

the way that politicians slip things in to bills instead of being bold and just saying here it is… we are making major changes.  It is cowardice at the least!

So as politicians and bank executives continue their agenda to eliminate mortgage brokers, North Carolina mortgage clients (both buying homes and refinancing a mortgage) should brace for less competition, higher fees and less service. Its coming…

This post is my opinion and interpretation of the new law and does not reflect the position or views of anyone other than me!

Wachovia Bank Losses Forces Game Playing

Wachovia today reported losses of over $8 Billion, well beyond any analyst’s expectation. With most of Wachovia’s losses coming from the mortgage market, which I would assume was made even worse by the purchase of Golden West and the Pick A Payment loan program, Wachovia is scrambling to prevent being a lame duck ripe for a takeover.

Right now they need to make their shareholders feel confident that Wachovia can turn this ship around quickly. So what do they announce? Wachovia is withdrawing from the wholesale mortgage business and will no longer do business with mortgage brokers. (Really? Did they really?… we’ll explore that more in second.)

The idea here is that since mortgage brokers have been unfairly held repsonsible for the entire mortgage snapfu that we are in, why not seperate themselves from the “evil mortgage brokers” and show investors that they have made major changes! This will allow them to put on a show to their shareholders to make them feel a little better about the major losses.

But this show is really just smoke and mirrors. Read the rest of this entry »

What is a “Net Branch” mortgage company?

“Net branch” mortgage companies are mini franchises. The idea is that instead of actually opening your own mortgage shop, you join a company that allows you to open a “branch” in their name. The attraction for the owner, called a “branch manager” is the ability to operate under a “known name”, the ability to have a corporate shield to cover the manager’s liability, and the possibilty of circumventing state licensing laws.

Basically anyone that wants to open a mortgage company (with minimal experience) can give it the ole “college try.” If it doesn’t work out, they have not totally invested themselves and can walk away at any time. The corporation is ok with that because they get set up fees and monthly fees regardless of how much the branch does. And since the corporation is not repsonsible for the leasing of space, equipment, ect.. there is no real investment on the corporation’s part either.

These “net branch” mortgage companies are also not looked at favorably by most state banking commissioners. The North Carolina Commissioner of Banks does not like these types of setups at all. There are only a couple that the NCCOB are “ok” with in NC, and that’s only because they are based in North Carolina, therefore satisfy the licensing requirements often avoided under this setup.

My suggestion is to make sure the mortgage lender you are working with is a solid company. With so much on the line, you do not want to trust your most important financial decision to a “net branch” operator seeing if “this is for him.” That could leave you with a “Net Loss.”

Residential Mortgage Center is a full service, FHA approved mortgage company in Charlotte NC operating under a North Carolina mortgage lender’s license. And while we actually have four offices across NC, they are fully owned, operated and managed by Residential Mortgage Center, and are not “net branches”.

A chicken and a pig were walking down the road. Soon they were both very hungry. In discussing what they should eat, the chicken came up with a solution. “Let’s eat eggs and bacon. We have all we need right here!” The pig was not so excited with this suggestion. “For you, it’s a simple donation,” said the pig. “For me, it means total commitment!”

So what has that to do with mortages or real estate? Read the rest of this entry »