Mortgage brokers fear 'extinction' if new bill passes

Losing yield spread premiums would destroy revenue model, group says

The National Association of Mortgage Brokers is so concerned that recently proposed legislation would crush its revenue model that it scheduled national teleconferences and prepared sample letters for members to mail to their respective congressmen.

In an e-mail to all NAMB dated Nov. 1, Denise Leonard, the organization's government affairs chairperson, wrote:

"Mortgage brokers are facing extinction. The U.S. House of Representatives is considering a bill that will fundamentally change the way we are paid, outlaw YSP, and legislate underwriting guidelines into law. Additionally, we fear that all subprime lending will cease to exist due to excessive lender liability. …''

NAMB members reported that 500 phone lines were made available for two teleconferences last week -- and all lines were busy. An unknown number of brokers could not get through due to the volume of calls.

The bill, H.R. 3915, is known as the Mortgage Reform and Anti-Predatory Lending Act of 2007 and was recently introduced by House Financial Services Committee Chairman Barney Frank, D-Mass., along with Democratic North Carolina Reps. Brad Miller and Mel Watt.

A mortgage broker is often confused with a mortgage banker. A broker does not actually lend money. A broker acts as a liaison between a consumer who needs financing for a mortgage loan and a lender who has money available to finance the purchase. The broker brings the lender and borrower together.

Mortgage brokers receive a loan fee from either the borrower or the lender, or both. Borrowers may pay brokers an origination fee based on a percentage of the loan amount. In some cases, the broker receives a fee from the lender. Fees paid by the lender to the broker are known as yield spread premiums (YSPs). It is this fee that brokers are concerned about losing.

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