Scapegoats

Legitimate compensation or an illegal referral fee (kickback) – really two existentially different, and diametrically opposed concepts! – each claims reference to the yield spread premium (YSP). An entire class of financial institutions serving the consumer is being held up to public opprobrium over the legal practice of receiving YSPs from a lender for assisting in the negotiation and origination of residential mortgage loans.

The class of financial entities we refer to, of course, is mortgage brokers.

The level of scorn and malign commentary has gradually reached a fevered pitch, where certain consumer advocacy groups, politicians, heralded economics professors, and some professor-politicians alike now willfully call the YSP a kickback. For a very long time, however, they viewed the YSP as a vital, functional component within the broader context of mortgage loan originations.

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Incompatible Nomenclature

Linking the nomenclature of "yield spread premiums" with "kickbacks" is an attempt by various parties, including the main stream media, to sway public sentiment toward viewing YSPs as inherently, adversely affecting the borrower – and, by extension, implying that the mortgage broker’s receipt of a YSP from a lender is somehow a kind of sneaky, underhanded act.

A New York Times editorial recently inveighed that the "first step must be to outlaw the kickbacks" and "the most clearly unethical form of payment is the so-called yield-spread premium."

These assertions amount to inferring that the YSP is a prime causative agent of the mortgage meltdown crisis, and specifically the subprime defaults, because brokers had allegedly "steered" borrowers to inappropriate loans that paid higher yield spread premiums.

This allegation is really part of the on-going "blame game" that has saturated the economic environment for the last two years. In this circular firing squad, the last one standing (rightly or wrongly) takes all.

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About the Author: Jonathan Foxx is the President and Managing Director of Lenders Compliance Group, a mortgage risk management firm specializing in all areas of mortgage and lending compliance.

Loan Modification Companies (LMC’s) – The New Boom Industry

Like daisies springing up after a rain storm, loan modification companies (LMCs) are popping up throughout the country in the wake of the mortgage default crisis – willing, but mostly not ready, to assist borrowers in need of modification services. Readiness should mean only one thing: functioning within a regulatory framework and the implementation of all relevant compliance requirements. However, specific guidelines, rules, and statutes to regulate LMCs are either insufficient or non-existent in many states!

Often, these companies are former mortgage brokers and real estate brokers who have re-cast themselves as experts in loan modifications. Armed with their database of previous loan originations, whether purchase money or refinance mortgages, LMCs now contact their former borrowers to pitch them this time around in two ways: either they offer to refinance the borrower into a lower interest rate mortgage, perhaps also into a different loan product, or, finding out that the borrower is in default of the existing loan terms, they offer to provide loan modification assistance. Another way they obtain a borrower’s contact information includes perusing public notices, such as pending litigation vis-à-vis the recordation of a lis pendens.

LMCs relationship with Servicers

In an effort to deal directly with the borrower, many servicers have staffed-up. Although overwhelmed, they must also contend with LMCs that may be unlicensed and unregulated. Servicers are subject to licensing and are highly regulated, so it is incumbent on them to know that an LMC is acting within the law and has a dependable compliance program. Therefore, a servicer is often wary of the information and documentation it has received from an LMC, especially if the LMC cannot provide or prove its implementation of all state and federal regulatory requirements.

Because we are a risk management firm devoted to the mortgage and lending industries, we often see firsthand the sometimes catastrophic results of not implementing an adequate compliance program. Nothing cries out for more regulatory compliance guidance than the LMC!   In response to the need for regulatory compliance, our company developed a comprehensive program to evaluate an LMC’s or a servicer’s processes and procedures with respect to loan modifications and loss mitigation.

Click here for more details about our program <<<  8 necessary points of action

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Jonathan Foxx, is the President and Managing Director of Lenders Compliance Group, a well-respected and nationally known risk management firm specializing in all areas of mortgage and lending risk management. (contact Jonathan )

The company’s specialties include legal reviews and remedies, state and federal compliance reviews, due diligence audits, banking and regulatory examinations, and comprehensive reviews of all federal and state regulations affecting mortgage loan originations and consumer lending.