May 14th, 2011 8:56 PM by Preston Ware
Brokering will be on the decline from now on. As of April 1, 2011 any major lending institution who does not have access to a bank line will be effected by the recent law changes with regard to loan originator compensation. The capping of yield spread will mean big trouble for companies trying to stay afloat.
Basically, a lender can no longer pay a loan broker a yield-spread premium, which is tied to the rate or terms of the mortgage. The fee that they will earn will be the same for each and every interest rate offered.
The problem with this rule change is that mortgage brokers as companies are no longer allowed to charge application fee which is a standard and acceptable fee to cover overhead. (My application fee is $595.)
Personally I am unaffected by the rule change but hate to see another step taken against mortgage brokers by Washington.
As I mentioned in previous posts Fannie Mae is expected to come to an end in about 6 years. These steps will all improve the importance of the local community bank to lend to the communities they are located in. (which is something they are supposed to do in the first place.)
I expect to see all sorts of interesting new loan products on the horizon as lending becomes more privatized and new players emerge on the scene.