I must have misread this bill on the subject of YSP. My understanding was that they capped total compensation but didn’t eliminate YSP. Where can I find a copy of this bill so I can read it again?

Thanks in advance.

I agree that there needs to be national licensing, better qualifications for people borrowing money and better oversight. I do not believe that YSP should be eliminated and that securitizers should be liable for the work of others, especially on stated income loans signed by borrowers with falsified information.

Charles, you bring up an interesting point about MN. They did eliminate all stated loans there hurting self-employed folks. I think fannie mae should come up with a new underwriting standard for self-employed people which is full doc but has cause for allowances in write offs and its off-set on effective income for paying debts (including the mortgage).

Chris and Mike – I agree, nationwide licensing has to be the biggest no-brainer out there right now.

Ann- I’m going with Russ on this one. The elimination of YSP could have terrible unintended consequences such as immediate elimination of home equity, reduced competition and higher interest rates. See my newest post for more.

I think this is a win win proposal.

Regarding the securitizer side of this proposal I am not qualified to speak.

It is a measure being sponsored by Rep. Keith Ellison that limits pre-payment penalties (not the end of the world), caps broker fees (not the end of the world in the way that it’s written) and prescribes methods of documenting the borrower’s capacity to repay a loan.

It’s this last provision that has been so devastating. The text for this bill was taken right out of the MN Attorney General’s Bill that passed this year. Here’s the language:

“No person acting as a residential mortgage originator make, provide, or arrange for a residential mortgage loan without verifying the borrower’s reasonable ability to pay the scheduled payments of the following, as applicable: principal; interest; real estate taxes; homeowner’s insurance, assessments, and mortgage insurance premiums. For loans in which the interest rate may vary, the reasonable ability to pay shall be determined based on a fully indexed rate and a repayment schedule which achieves full amortization over the life of the loan. For all residential mortgage loans, the borrower’s income and financial resources must be verified by tax returns, payroll receipts, bank records, or other similarly reliable documents.”

Regardless of interpretation, this is what happened. Every meaningful lender that is still in business cancelled ALL loans with doc types other than full doc. It rolled back our industry in MN by 13 years. Personally, I approve of this measure for all borrowers who aren’t self-employed but that’s the rub. . . There aren’t exceptions for self-employed borrowers in the federal bill that comport with any doc type but full doc.

So what would this mean for you? Run a database search of all of your closed files for any application where at least one of the borrower’s was self-employed. Then figure out what the gross revenue was on those files. Now take out half of that revenue and build that into your projections. If you think I’m exaggerating, start doing Fannie Mae Self-Employed Income Analysis on your borrowers and see for yourself how few make the cut.

Be sure to keep an eye on initiatives being introduced by your state attorney general. Even if this doesn’t pass on a federal level, it’s likely that this bill is coming to a state near you.

The anti-steering subsection reads that ?no mortgage originator can receive, and no person can pay, any incentive compensation (including yield spread premiums) that is based on or varies with the terms of a mortgage loan.?So essentially option-arms with 3.5% rebates will absolutely be a thing of the past, and banks won?t be able to push one loan program harder than another.

This will make a tremendous difference across the board..not just to the brokers who are taking the brunt of dirty side of mortgages…If it wasn’t for the excessive payouts of many of these loans, borrowers who would have been qualified for fixed mortgages would not have been placed into a ARM loan..

However, I also believe this is the same bill that Mr. Frank is trying to outlaw yield spread premiums (at least on sub prime loans). That is a big problem given that no loan originator is going to work for free. It is not like subprime borrowers have a lot of extra cash laying around to pay their LO.