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Right Target, Wrong Approach to Abusive Fees
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This is not feasible because there are too many originators and not nearly enough regulators. Even if it were feasible, it would not work for brokers who get paid only by these rebates, which is common. It also wouldn't work for loan officers employed by lenders who originate at their own risk. For them, there is no yield spread premium.
Indeed, the only originators who would leave a trail for the enforcement police would be the brokers who give their customers the choice of whether they want to pay the broker out of pocket or have the broker paid with a premium.
Because these brokers offer borrowers a choice, fees will be shown with and without the yield spread premium, allowing analysis of whether there are any differences. There won't be, because these are the good guys. The bad guys will be beyond reach.
In contrast, a rule requiring lenders to credit rebates on high-rate loans to borrowers, who would have to explicitly authorize payment to the brokers, would affect all brokers alike and impose no huge enforcement burden on regulators. (To level the playing field between lenders and brokers, a comparable rule should prohibit loan officers from charging prices above those posted by the lender.)
Because wholesale lenders would welcome such a rule, there would be no regulatory burden. Poof! Yield-spread-premium abuse would disappear overnight.
Jack Guttentag is professor of finance emeritus at the Wharton School of the University of Pennsylvania. He can be contacted through his Web site, http:/
Copyright 2007 Jack Guttentag
Distributed by Inman News Features
