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Posts Tagged ‘NC H2188’

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!