Mom-and-pop mortgage brokers in the Washington area are bracing for a new set of rules issued by the Consumer Financial Protection Bureau last month that they say could make it difficult for some to remain viable.
The regulations, which were originally authorized as part of the Dodd-Frank Wall Street reforms, aim to protect consumers from risky and overpriced loans.
The guidelines also limit the amount of compensation brokers can command per deal to 3 percent. A portion of that would go toward transaction fees as well as loan officers’ salaries, which area brokers argue leaves too small a cut for them.
“Honestly, this will dictate how many mortgage brokers will be able to stay in business,” said Kevin Retcher, chief executive of First Meridian Mortgage Corp. in Alexandria. “It’s going to get a lot tougher.”
The rules are slated to go into effect next January. Brokers and associations say there is still some confusion about exactly what fees and costs are included in the 3 percent cap.
“We’re trying to get a total definition of what those fees will be and whether transfer fees and state taxes are included,” said Don Frommeyer, president of the National Association of Mortgage Brokers.
The CFPB is still fine-tuning the regulations and determining which fees will and won’t be covered. The bureau is accepting comments from the public until mid-February, said Moira Vahey, a CFPB spokeswoman.
Depending on the wording, area brokers say it will be difficult to offer lower-priced mortgages. A $100,000 mortgage, for example, would result in a maximum $3,000 fee that would be distributed among several parties.
“In the end, it’s going to end up hurting consumers who are looking for lower loan amounts,” said Diana Cook of Metropolitan Mortgage Services in Washington.
The CFPB’s new guidelines include other provisions, as well: Mortgage brokers who connect home buyers to lending institutions can only receive payment from either the borrower or the lender, not both. Brokers also cannot receive incentives for persuading clients to agree to higher interest rates or fees.
“The intentions are good, but we just don’t know what the repercussions will be,” said Jeff Douglas of Douglas Mortgage Services in Fairfax.
A few years ago, during the last round of regulations, Douglas said he nearly threw in the towel. He was tempted to close his one-man shop and go work for a financial institution where he would be paid a steady salary.
“A lot of mortgage guys went over to the other side, to the banks,” he said. “I was very much considering bolting, too.”
But not all brokers say they’re worried.
“I started in this business in 1993,” said Paul Skeens of Colonial Mortgage Group in Waldorf. “In 1995, there were all these new rules and everybody was sure we were all going to go out of business. But that didn’t happen, and it won’t happen this time.”
“My philosophy is: Tell me the rules, and we’ll play by them,” he added.