On Tuesday, December 22, 2009, the Mortgage Bankers Association (MBA) filed 2 comment letters with the Board of Governors of the Federal Reserve System, both relating to the proposed amendments to Regulation Z, the implementing regulation for the Truth in Lending Act (TILA).
The first letter specifically addresses the proposed rules to revise consumer disclosures and compensation practices for closed-end credit transactions – a credit agreement in which the amount advanced, plus any finance charges, is expected to be repaid in full by a specified date, such as your traditional 30 year fixed mortgage.
The second letter addresses the proposed rules on open-end credit transactions — credit agreements allowing a customer to borrow against a preapproved credit line when purchasing goods and services, an example fo which could be a home equity line of credit (HELOC).
In both letters, MBA expresses concern that the proposed rules could harm consumers and increase costs unnecessarily. The letters suggest improvements to the proposed rules (and the disclosures) that would avoid potential unintended consequences.
No Limit Broker Compensation
Mortgage brokers have been vilified in the press over the past two years for overcharging borrowers and not disclosing true loan costs. The “yield spread premium” method, by which the lending bank gives the mortgage broker an extra fee for putting a borrower into a certain loan, has been widely criticized as a hidden fee that most refinance borrowers are not aware of.
In light of these problems, several lawmakers have proposed limiting compensation available to mortgage brokers to a set fee of some sort. The MBA, in its letter, srongly opposes such limits, arguing that such a law would only lead to more lawsuits and thus more cost for home loans in the future.
This sends shivers down my spine. I’ve read what some would call “conspiracy theories” where consumer protection laws will be changed and Big Brother will swoop in and save the day. God save us!