Over the weekend I read another article about the steps the government is taking to reform mortgage services. I just shook my head thinking about all the tax dollars that are being spent on committees and research. You know how fast government works, right? Halfway through the article, it states that they are still years away from any type of reform. In my opinion, not only is the government again messing with the free economy, but they are taking power and the voice away from the consumer. When I say voice, I mean that most consumers think the government will make everything better and they should not demand transparent mortgage services NOW.

So I say, let’s derail this slow moving, tax funded, train!

…along with all of the reforms, really — could possibly cost consumers more for their mortgage, perhaps adding as much as a half a percentage point to their mortgage rates, said Cameron Findlay, chief economist for LendingTree.com. In addition, lenders who can’t afford to make the procedural changes might be forced out of business, which could effectively decrease competition, he added…

But, Findlay said, any extra costs would be worth it to restore faith in the system and protection for consumers. Also, it’s a drop in the bucket compared with what it’s costing to clean up the havoc created in the mortgage market and the entire economy when mortgage money was easy to get.
Source: MarketWatch

I say we can, and are, doing it now, for free and still maintaining the free economy.

Below are three points from the article that can be address now

1. Requiring transparency. Consumers would receive a simple, integrated federal mortgage disclosure that is “reasonable, clearly written and concise,” and be adequately presented with the risks and benefits of a mortgage product.
   
   First of all, we have this now, it’s called the good faith estimate. It sounds like they want to add more documents to it, that probably won’t be read by the consumer because they will be given in the already large folder-o-docs that you get with any mortgage. You can make it as simple to read as possible, but when accompanied by dozens of other documents it just become another “skim over” item.Doesn’t better, more trustworthy, business win… Instead of waiting for the government to give the people the “thumbs up” and say it is now safe to borrow and trust mortgage brokers again, the consumer should be educated and shown that there are transparent mortgage services out there. Consumer demand outweighs government intervention any day!
2. Promoting simplicity. Borrowers would first be offered “plain vanilla” mortgages with terms that are straightforward. They can obtain more complex mortgages, but those vanilla loans will be presented as a first choice.
   
   I think what they are talking about here is when a consumer cannot afford a mortgage of any type, so the mortgage broker gets creative, skips the 30 year fixed products and goes right to the adjustable mortgages. Again, it comes down to transparency of mortgage broker, and many Realtors, that often separate themselves from the mortgage side of things, need to stand up and protect their clients too. Real estate transparency is an umbrella, covering all aspects of the transaction.
   
   
3. Demanding fairness. Mortgage brokers would be required to determine whether the mortgage they’re selling to a borrower is affordable, and prepayment penalties would be banned or restricted. Hidden fees that compensate a broker for selling a higher cost loan would be banned.
   
   This is where it starts to play with our free economy. Is that gas you’re buying affordable? Is that dentist bill affordable? is your paycheck big enough… This is a slippery slope when the government starts making vendors question whether the product they sell is affordable. Maybe the government should just jump in like health care and create a government mortgage loan service and compete with the big mortgage companies? That would solve everything!

If you think that we can change the mortgage industry before the government can, please become a fan of the Transparent Mortgage Network on Facebook. Let’s build a voice and create a better mortgage system.

I’m not a mortgage broker or real estate agent. I’m a programmer and like most people not in the business, I have no idea what happens behind the scenes when buying a home, getting a mortgage, going into escrow, or any other real estate transaction process. So when I was hired to develop RateWindow.com I was told about how transparency will help the typical mortgage borrower, but still didn’t truly understand it. So, I went into my personal records and found a closing statement from a condo I bought a few years ago. What I found made everything clear!

I’m pretty sure you don’t know what Yield Spread Premium (YSP) is. It is  hidden in most mortgage transactions until the closing statement is presented and home buyers are ready to close escrow and complete the home buying process. Below is an actual scan of a closing statement is which you can see the YSP among all the other fees that are associated with a home purchase.

In this case the YSP was over $3,800, a hefty chunk of change.

I didn’t even see it, until I re-read the statement 3 years later. It was probably mentioned during the 30 day escrow but at that time your head is spinning with all the docs you have to sign and things to do. Worse thing is, I was really good friends with the mortgage broker, and now that I understand YSP better, I will never look at them the same way.

Why is the YSP not even in a debit column?

because, it is not a direct payment. It is carried into the life of the loan, so not only is it a large amount, but it will be compounded by interest over the next 30 years. That alone will triple the amount.

If you are unfamiliar with YSP, you can do some research on it at the YSP wiki

An inherent problem with the Yield spread premium is that it’s anti-capitalistic. Typically, the borrower has no idea or does not completely understand how the broker is potentially compensated on the back end and therefore can’t truly price out the service being provided to the borrower. The definition of capitalism is a willing buyer, knowing all the facts and circumstances surrounding a service the buyer is considering purchasing (including how much the service provider is being compensated) makes a choice to use the service provider. Since the borrower typically has no idea or does not understand that the broker could potentially get paid on the back end, they can’t compare terms between brokers.

Back to RateWindow.com. Now that I understood YSP better, mind you I’m still a developer, and still don’t understand all the mortgage talk, I was ready to fully jump on board. I’m very proud to be part of the transparent movement now and know that I was the first to develop a web application that turned that $3,800 FEE into a rebate to the consumer.I can only hope for the future an in 5, 10, 15 years I smile when I think of all the rebates people will get with the services I helped make. I think the savings will be in the millions!

Click to check out RateWindow, even if you’re not in the market for a loan, I think you’ll see that it is a much needed service, especially with the current economic conditions of the nation.

In the eyes of a typical homebuyer, what is the lending process like? I'll talk about this in my next blog post.

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The RateWindow CEO, Mark Warner, will be speaking at Inman this year. His panel’s topic is “Blowing Up the Black Box: How to Make Radical Transparency Work.” We’ve been working on mortgage transparency for a couples years now so I’ve read a lot of news/blogs about how professionals are trying to be transparent. One thing that catches my eye in most, is that along with the buzz word transparency, I also see words like revolutionary, radical, innovative. Being a web developer for over 10 years, I do realize that keyword buzz is important for promotion, and in most cases that is all these words are trying to do, create buzz. In my opinion, transparency is not radical nor revolutionary, especially when it comes to mortgages.

When I think of radical transparency I think of knowing everything about the person I’m dealing with. Have they been arrested, what’s their political views, whats their religion, who are their other clients, etc… That IS Radical transparency. RateWindow is not that.

Scenario:

You just found a home you like and what to buy it. For the next 30 days you are going to be involved with a lot of people. You need to trust them, but they don’t need to be radically transparent. Another keyword you hear all the time in mortgage is “NO HIDDEN FEES”. While I agree that there are absolutely no hidden fees in any mortgage transaction, there are bait and switch. When you close a loan the last thing you do is sign off on the closing statement. The last thing you want to see is a fee that you might, or might not have been told about on that sheet, because if you don’t sign it, you don’t close and will possibly lose the home.

Therefore, business level transparency is what I call it. For these 30 days I want complete business transparency with the person I’m dealing with. Below is what I want to know before closing day.

1. Flat Service Fee. I want to know exactly how much I will pay the mortgage broker in fees to get me my loan. Whether this is a flat fee of $3,000, or a percentage of the cost of the loan (1% of 300,000). This does not mean I want a “Discount broker” Flat service fees should go hand in hand with the amount of service I’m provided. I have no problem paying a higher fee for better service. I’m a true believer in you get what you pay for.
2. I want to see every rate. I don’t care if its 12% and 10 points… I want to know that I’m being shown everything. My life is not like your life, I might buy a house and live there for 2 years, or I might live in it for 20 years. In each case I will want either a higher or lower rate based on the amount I will spend over the life of the loan.

That’s not that radical is it? with only these two bits of information I am now more empowered to talk to my loan officer about MY loan. This is all it takes to raise the trust level in this business trasaction so I can rest assured I’m getting the best loan for me and my family.