Mortgage Brokers Facing Extinction

Mortgage brokers may be facing extinction.

The U.S. House of Representatives Financial Services Committee has approved a bill that will fundamentally change the way mortgage brokers are paid. This bill could cause borrowers who can't afford to pay higher brokers upfront to be squeezed out of the market.

The YSP has enabled many borrowers to opt for a little higher interest rate in order to lower their out of pocket closing costs.

While it is important that consumers should not be steered into a particular loan, the bill leaves unclear whether consumers can finance their origination fees and other costs inside the interest rate.

What is at issue here is whether or not brokers can be paid YSP. YSP is the money paid to brokers by the bank. The YSP brokers receive is fully disclosed on the HUD1 form at closing.

If the mortgage is originated by a mortgage banker, or a bank then the borrower is NEVER made aware of the YSP on their loan. Speculation in the mortgage industry attributes this lack of disclosure to the powerful banking lobby.

Organizations across the mortgage industry are fighting vigorously to remove this feature of the new bill from the finished product.

Buyer beware, as is often the case, when politicians try to FIX things they often make a mess.