Federal Proposal Response

							Response to Proposal change by the Federal Reserve Board

E-mail Subject Line:     Docket No. R-1305

To:                    The Federal Reserve Board
E-mail:                 regs.comments@federalreserve.gov
Fax:                   Fax: (202) 452-3819 or (202) 452-3102

From:                  ___________________________
                       ____________________________
                       _____________________________

Dear Federal Reserve Board,

The proposed changes to Reg-Z require that brokers, and only brokers, provide
consumers a binding, written disclosure of the total dollar amount of their compensation
(including YSP, Origination Fees, Processing Fees, Underwriting Fees and all other fees
earned) prior to application. Requiring only brokers to provide such a disclosure will
confuse and harm consumers who will mistakenly believe that lenders who don’t disclose
their compensation are saving them money. ADD YOUR COMMENTS/WHAT
EFFECT WILL THIS HAVE



Requiring brokers to disclose their total compensation as a dollar amount before
application will also lead to seat-of-the-pants service estimates based on partial
information. A Mortgage Broker will be required to blindly, without adequate
underwriting criteria, disclose to a borrower their total dollar compensation for a given
loan without the opportunity to make adjustments based on unforeseen circumstances.
ADD YOU COMMENTS/ WHAT EFFECT WILL THIS HAVE

The proposed changes to Reg-Z dictate harsh underwriting guidelines for a new class of
higher cost loans, those with APR’s that exceed comparable treasury yields by a certain
margin: 3% above for first mortgages or 5% for second mortgages. The proposed
triggers are far too inclusive and will subject many Jumbo, Alt-A, Agency-Jumbo and
FHA loans to these new guidelines, preventing credit worthy borrowers from obtaining
financing. ADD YOUR COMMENTS/ WHAT EFFECT WILL THIS HAVE

The proposal mandates a written disclaimer from the mortgage broker that states: “a
lender payment to a mortgage broker can influence which loan products and terms
the broker offers you, which may not be in your best interest or may be less
favorable than you otherwise could obtain”. Under California state law a mortgage
broker has an obligation to make a full and accurate disclosure of the terms of a loan to
borrowers and to act always in the utmost good faith toward their principals (borrowers.)
The proposed language wrongfully misrepresents the duties a broker owes his client, in
probable violation of state law. ADD YOUR COMMENTS/ WHAT EFFECT WILL
THIS HAVE
                      Board of Governors of the Federal Reserve System 
                           Proposed Rule Amending Regulation Z  
  
1.  Proposed Fed Rule Impedes Brokers’ Ability to Compete and Hurts Consumers             
  
The Board of Governors of the Federal Reserve System recently proposed amending Regulation 
Z, which implements the Truth in Lending Act and the Home Ownership and Equity Protection 
Act.   
  
The proposed Fed Rule would put in place some useful consumer protections, but it also would 
impose significant burdens on mortgage brokers.  In particular, the proposed Fed rule would 
require brokers, but not other mortgage originators, to disclose the specific dollar amount which 
the broker would earn from a transaction, including yield spread premiums.  That disclosure 
would have to be made before the consumer paid any fee to any person, and before submitting 
an application.  Brokers may only receive compensation disclosed in that manner.  If there is no 
such disclosure, the mortgage brokers cannot be paid by any amount by any party, lender or 
borrower. 
  
HUD already requires disclosure of yield spread premiums in both the GFE and HUD‐1.  
However, the Fed believes additional disclosure is needed from brokers, but not other 
originators, to protect consumers because, the Fed claims, consumers believe that brokers are a 
“trusted advisor” who are bound to get the best possible deal for borrowers, but do not view 
other originators in the same way.  The Fed has taken this position even though exhaustive 
studies of mortgage disclosures by the Federal Trade Commission, the government’s principal 
consumer protection agency, in 2004 and 2007 show that additional disclosures of mortgage 
broker compensation created confusion, caused consumers to choose more expensive loans, led 
to a bias against broker‐assisted transactions, and impeded competition, thus hurting 
consumers.   
  
     2. Opportunity for Public to Comment on Proposed Fed Rule 
  
The Fed, like other federal agencies, is required to solicit comments from the public on any 
proposed regulation.  The Fed must consider those comments before issuing a final rule.  
Comments must be submitted by April 8th .  Comments may be submitted at 
regs.comment@federalreserve.gov, and should identify “Docket No. R‐1305” in the subject line 
of the message. 
  
  The National Association of Mortgage Brokers will file comments on the proposed Fed rule.  
Those comments will be very detailed, and include lengthy analyses of such matters as research 
methodology and rulemaking procedural requirements.  However, it would be quite helpful for 
others to submit comments as well, particularly if those comments were mortgage brokers who 
explain real‐life, practical considerations about how mortgage markets work and how brokers 
conducted their business.  Attached are some points which it would be useful to make in such 
letters. 

 
                  Suggested Points to be Made in Comments Submitted on 
             Proposed Rule Amending Regulation Z (Truth in Lending and HOEPA) 
                                                      
                                                      
             WHAT:  The Federal Reserve has proposed a new rule which would implement several 
             measures designed to protect consumers.  Among other provisions, the proposed rule 
             would prohibit mortgage brokers from receiving any compensation unless the specific 
             dollar amount of the total compensation the broker would receive from both the 
             borrower or the lender, including yield spread premiums, was agreed upon with the 
             borrower before an application was submitted.  This requirement would be in addition 
             to the disclosures regarding broker compensation required by current law to be 
             included in the GFE and HUD‐1.  The Fed is required to solicit comments on the 
             proposal from the public.  Brokers are encouraged to submit comments on the 
             proposed Fed rule. 
               
             HOW:       Comments may be emailed to the Board of Governors of the Federal 
             Reserve System at regs.comment@federalreserve.gov, and should identify “Docket 
             No. R‐1305” in the subject line of the message.   
          
         WHEN:     Comments must be submitted by APRIL 8, 2008. 
           
         SUGGESTED POINTS FOR LETTER: 
           
[Theme:  Highlight Real Life Experiences and State and Local Considerations] 
  
    • Identify broker writing letter by name and home town 
  
    • Express support for the consumer protection goals of the Federal Reserve Board’s 
       proposed amendments to Regulation Z, but respectfully oppose the proposal to restrict 
       compensation for mortgage brokers 
  
    • Explain the services that mortgage brokers provide as an intermediary between 
       borrowers and lenders, and the value the broker adds in the real estate transaction by 
       serving BOTH parties, but representing NEITHER.  
  
    • Explain how mortgage brokers must compete with direct lenders, and how the 
       distinctions between brokers and lenders have blurred in recent years as lenders 
       themselves typically package and resell loans they originate 
  
    • Note how consumers are largely unable to distinguish between brokers and lenders, 
       which have similar names, use similar signage, and rely on similar advertising 
  
    • Insist that any disclosures apply equally to ALL mortgage originators, not just brokers 
  
    • Explain how yield spread premiums are much more than just compensation, and how 
       they are used to pay certain costs and facilitate the loan transaction 
  
    • Explain how, in the real world, requiring brokers, but not other loan originators, to make 
       compensation disclosures enable the brokers’ competitors to steer consumers away 
       from brokers, even if brokers offer more favorable loans 
  
     •   Explain how it is impossible to give a reasonably precise dollar estimate of fees a broker 
         will charge in a transaction even before an application is submitted because the broker 
         does not yet know the prospective borrower’s financial status, transaction details, type 
         of  product sought, or amount of loan, all of which may vary as the transaction 
         progresses   
  
     •   Suggest that the Fed consider alternatives to the proposed regulation which would 
         protect consumers in their dealings with all mortgage originators, and encourage 
         competition on price and service 
  
     •   Thank the Board of Governors of the Federal Reserve for considering the comments 
  
 
To Whom It May Concern:




Although I support the goals of protecting consumers with the proposed amendments being sought by the
Federal Reserve Board, I respectfully oppose the proposal to restrict compensation for mortgage brokers.

Some may believe that Mortgage Brokers only take from a transaction rather than add value. In many cases, a
homeowner's only protection is the MB because he or she is responsible for informing and educating the
consumer about the responsibilities and obligations they are agreeing to comply with in the transaction. This
service is time consuming and should be compensated.

Mortgage Brokers compete with direct lenders, however this line of distinction has become blurred recently.
The primary advantage that the Mortgage Broker brings to the table is the ability to take a global prospective
to what's available for the consumer in a global environment.

In many cases, the consumer has no idea how to distinguish between brokers and lenders because they all
seem to have similar names, signage and rely on similar advertising.

As an industry professional I would insist that any disclosures would be applied equally to ALL mortgage
originators, not just brokers. As a citizen I would expect regulatory agencies AND Congress to treat each
person equally.

Yield spread premiums are NOT merely additional compensation to the Broker. These funds are used to pay
certain costs that facilitate the transaction. Costs that are not extended to the direct lenders in the market.

By using compensation disclosure documents, competitors would use this as a toll to unfairly characterize
Brokers and being overcompensated and greedy, even if the Broker offered more favorable loans. Brokers are
not afraid of competition, so long as it is fair to all in the industry.

Consumers are always advised that the fee estimate of a Broker is just that, an estimate. No one can precisely
provide this to a consumer without a global perspective of the client he or she is dealing with. Until all the
information is acquired, not even direct lenders can make this estimate accurately.

I suggest that the FRB consider alternative to the proposed regulation which would protect consumer in their
dealing with ALL mortgage originators, and encourage competition on price and service.

Thank you very much for allowing me to submit these thoughts for your consideration.
FROM THE DESK OF THOMAS LOHMAN, MORTGAGE LOAN OFFICER, STATE OF
UTAH

Re: Docket No. R-1305

To: Board of Governors of the Federal Reserve System
    Email regs.comment@federalreserve.gov

April 08, 2008

My name is Thomas Lohman. I live and work in Ogden, Utah as a mortgage loan officer and am
writing you regarding my feelings on the proposed amendments to Regulation Z. I respectfully
oppose the proposal to restrict compensation for mortgage brokers.

Mortgage Brokers and their loan officers provide intermediary services between borrowers and
lenders. The value that I add in a real estate transaction by serving both parties, but representing
neither, is critically important to the stability of the economy and continuation of free market
competition between the direct to the public loan business which is what I do versus the big box,
brick and mortar, big bank walk in retail loan business.

The proposed amendments to Reg Z place that healthy competition, that must continue between
the loan broker and the big banks, in jeopardy not to mention the far reaching damage that will
be caused to the entire loan broker industry that may come of passing the Reg Z as proposed.

The typical consumer looking for a mortgage loan are largely unable to distinguish between loan
brokers and big bank lenders. The distinctions between brokers and lenders have blurred in
recent years as big bank retail walk-in lenders themselves typically package and resell the loans
they originate just like the industry I work in. Even advertising, disclosures and much more is
the same for both big bank lenders and the mortgage broker industry. Because of the almost
identical way both industry operate I think it high time that all required disclosures apply equally
to all mortgage originators, not just brokers and their loan officers.

Regarding Yield Spread. These premiums paid to loan officers like myself are much more than
just compensation. Often I use the premiums to pay cost for the borrower and sometimes the
seller to facilitate in loan closings. To take this vital tool away from me would not be in the best
interest of those whom I serve not to mention the devastation to my personal income that would
come from this.

In the real world where I work and earn a living, requiring brokers, but not other loan originators,
to make compensation disclosures enable the brokers‘ competitors to steer consumers away from
brokers and into the big bank retail business, even if the brokers loan programs offer more
favorable loans to the consumer.
Regarding upfront disclosures. Disclosure of “PRECISE DOLAR AMOUNTS” for fees a
broker will charge in a transaction, even before an application is submitted, even before the
broker knows the prospective borrowers financial & income& employment status, even before
all credit file details are analyzed, even before all of the transaction details are known, even
before the type of product the borrower chooses is known and finally even before the final dollar
amount of the loan is know, fly’s in the face of logic or common sense or practicality.

To require anything more than an “estimate” in the beginning of a transaction followed by a
second and final disclosure of all of the above, once it is all ironed out and clearly presented to
the borrower and is understood by same, will do nothing more that confuse and mislead the
borrower. This will open a can of worms that will lead to more complaints and does not protect
the consumer.

In closing I wish to thank the Board of Governors of the Federal Reserve for considering my
comments and ask that the Fed consider alternatives to the proposed regulation which would
actually protect (not confuse and complicate further the already complicated process) consumers
in their dealings with all mortgage originators and encourage competition on price and service.

Warmers Regards

Thomas A Lohman
801-786-1991 Day Time
10am – 5 pm M-F
Ogden, Utah

Email: tom@samedaylendinginc.info
From:           "Adam Spiel" <adamspiel@goutahloans.com> on 04/04/2008 02:35:03 PM

Subject:        Form Letters-Regulation Z Mortgage Lending


I support and agree with the comments submitted by the CMPS Institute which can be found at:
http://www.cmpsinstitute.org/pdf/CMPSCommentsforFRB.pdf.


I urge you to highly consider their recommendations.




Adam Spiel
First National Mortgage of Utah
Mortgage Planning Specialist
www.goutahloans.com
adamspiel@goutahloans.com
cell 801.400.3090
office 801.748.0452
fax 801.748.2595