RESPA Lawyer Blog
Oregon Senator Jeff Merkley has introduced two new legislative bills that the real estate industry and public need to be keenly aware of: Senate Bill 911 known as The Transparency for Homeowners Act and Senate Bill 912 known as The Promoting Mortgage Responsibility Act. Sen. Merkley believes that abolishing the Yield Spread Premium (YSP) will stop the real estate mortgage problems in the United States because by eliminating the YSP will kill off the mortgage brokerage industry who rely on the YSP as part of their compensation. There have been abuses with the YSP and never was that more apparent during the sub-prime mortgage craze but if Senator Merkley was really interested in reigning in abusive practices they why didn’t he address the Service Release Premium (SRP) abuses which far exceeded the abuses of the Yield Spread Premium? Robert Blake of the Mortgage Insider criticizes both bills as an attempt by the banking lobby to kill off their competition.
Either Sen. Merkley is introducing these pieces of legislation on behalf of the big banks or he is uninformed as to the Service Release Premium problems that also affected millions of unsuspecting borrowers and to how the YSP actually keeps the costs down for borrowers. The big banks carved out the Service Release Premium from being disclosed on a HUD-1 while the Yield Spread Premium has to be disclosed on the HUD by the mortgage broker. Unfortunately what Sen. Merkley is attempting to do here with his bill will further consolidate power to the big banks at the expense of everyone else. If Sen. Merkley is serious about ending the YSP then why not go ahead and target the SRP as well? We believe that eliminating both the YSP or the SRP is foolish but Sen. Merkley needs to understand that eliminating either one of these will ultimately harm the consumer because they will be subjected to much higher closing costs & fees under his bill because the SRP compensation can be particularly abusive, especially when its not disclosed.
Sen. Merkley’s also attempts to abolish the Pre-payment penalty from loans. The abolishment of Pre-payment penalty is a good idea but very few loans today have a Pre-payment provision attached. The market forces have all but ended this abusive practice with the demise of the sub-prime mortgage industry.
Sen. Merkley needs to reevaluate both bills because eliminating the YSP will only fuel further abuses with the unregulated SRP. If Senator Merkley is serious about fixing the unregulated abuses perhaps he should amend the bills to include disclosure of the SRP just like we have disclosure of the YSP. Numerous studies show that abolishing the YSP or SRP is bad public policy but disclosure and implementing monetary penalties for not disclosing would be better for the public.
Senator Merkley should amend both bills to include substantial funding for the HUD RESPA enforcement division. Twenty employees to police the entire real estate industry is a joke and until that department is appropriately funded the abuses in the real estate industry will continue. The RESPA division and the Mortgagee Review Board of HUD are both supposed to regulate the real estate & mortgage industry but a lack of money, staff, & resources allow the abuses to continue. Sen. Merkley should focus on funding the regulators if he really wants to make a serious impact in reforming the real estate industry.