Life continues to get tougher for mortgage brokers

I'm sure it's difficult to be a mortgage broker these days: although I'm sure there are many ethical professionals who do their best to match the best (and most affordable) loans for their clients, it's become clear that there were also more than few bad apples who worked to simply maximize their own commissions. Consequently, the markets in which they work and the regulatory environment is changing rapidly. From today's San Jose Mercury News:

Among the changes that have roiled mortgage brokers recently:

• Bank of America stopped making loans through brokers in December. National City Mortgage, once a big player in "wholesale" lending through brokers, cut them off in December, too. Residential Mortgage Capital, based in Marin County, stopped working through brokers last week. Some big lenders have made the change to maintain more control and profits, experts said.

• Lenders have changed what kinds of loans they will make through brokers. Wells Fargo no longer offers many types of home-equity loans through brokers, for example. A bank might offer 5-percent-down financing to customers who work directly with the bank. But through a broker, borrowers might need 10 percent down.

• Non-conforming or "jumbo" loans are popular with local buyers, but they have been much tougher to get recently. Jumbo loans are those of more than $417,000 that are not purchased from lenders by government-sponsored financing companies Fannie Mae and Freddie Mac. Financing for jumbos instead comes from financial institutions and their investors, and it has tapered off dramatically since summer.

But brokers stand to benefit if Congress adopts a proposal announced Thursday to raise the limit on conforming loans. Fannie Mae and Freddie Mac would back more loans from high-costs states like California, helping local home buyers and brokers' businesses...

If lawmakers have their way, more change is on the way. With the implosion of the subprime mortgage sector came public realization that loan brokers are scantily regulated and face minimal licensing criteria. So state and federal legislators have proposed many bills that would affect loan brokers. A few:

• State bill AB 1830, introduced this week by state Assemblyman Ted Lieu, D-El Segundo, would among other things ban a form of compensation paid to brokers by lenders called the "yield spread premium," which critics say usually amounts to kickbacks for steering buyers to high-interest rate loans. Brokers say it's legitimate compensation that allows borrowers to avoid paying closing costs or points.

• HR 3915, which passed in the House of Representatives in November, would create a national registry and licensing system for loan "originators," including brokers, and require background checks and education requirements. Originators would be prohibited from directing borrowers to loans they cannot afford.

• State Sen. Mike Machado, D-Stockton, this month introduced SB 1053, which would require mortgage brokers licensed by the state Department of Real Estate to submit annual reports of their activities to the department, audited by an accountant and paid for by the licensee. Failure to submit reports could draw fines up to $10,000.