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Compensation Conundrum; North Carolina has banned YSPs for subprime loans. California considered such a ban. Will other states follow?

Article Excerpt
Byline: Jeniffer Harmon

As a result of the real estateboom and some of the abuses that came out of it, mortgage brokers and originators are moving into an environment of increased legislation and regulation.

It appears that regulators and legislators at the state and federal levels are taking action all at once. Industry insiders say there isn't much correlation and communication between these separate entities to come up with a cohesive set of guidelines.

North Carolina recently became the first state to ban subprime yield-spread premiums. It is joining a number of states that have taken action this year against lending abuses. Massachusetts, Maryland, New York and Connecticut have

moved to ban or largely restrict prepayment penalties. The Center for Responsible Lending says these same states were ahead of the federal government in requiring lenders to assess the borrowers' ability to repay.

While there is not much subprime lending left these days, National Association of Mortgage Brokers president Marc Savitt says fewer brokers will be doing these high-cost loans, which makes it difficult for the consumers who need them. "It will be more expensive. They will charge more money because of less competition. The consumer won't be able to get the financing."

Kate Crawford, a past president of the North Carolina Association of Mortgage Professionals, and a volunteer on the ground in Burlington, N.C., says brokers are upset over the law. Lenders are sending memos to brokers saying they will not do loans if they fall into the "rate spread home loan" category.

"This is not subprime," says Ms. Crawford, who...

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