My Email to the to the U.S. Senate Committee on Banking, Housing & Urban Affairs

Senator Christopher Dodd, (D) Conn, has proposed a Predatory Lending Bill specifically geared towrds mortgage brokers and subprime mortgage borrower in attempt to elimate yield spread premium. As I was unable to locate an email address for the Sentor on his website I sent the following email through a contact form on the Senate Committe on Banking, Housing & Urban Development.

Dear Senator Dodd:

I am writing this email with regard to your proposed predatory lending bill specifically the elimination of yield spread premium. Those outside of the mortgage lending community often time incorrectly define yield spread premium to be the difference between the lowest interest rate a borrower qualifies for, and the actual rate he gets.

As a registered mortgage broker in the state of New York I am greatly disturbed by this proposed legislation. Yield spread premium can be used in order to lower the cost of a closing for many borrowers. For example, on a loan of $350,000, with total closing costs of $6,000, a 1.50% yield spread premium would total $3,500 dollars. If I were to use $3,000 dollars of the yield spread premium to lower the front end closing costs of $6,000 to $3,000 and retain $500 for my service as a mortgage broker, would you consider this to be predatory?

Why should a borrower be forced to pay a broker fee of even $1,000 if the borrower chooses a slightly higher interest rate as the borrower feels it's in his or her best interest to do so? Why should a borrower be forced into obtaining financing through a direct lender when the borrower can retain a substantial amount of savings by working with a mortgage broker and receive wholesale pricing?

Regardless of popular opinion, yield spread premium is not always used to line the pockets of mortgage brokers. There are many mortgage brokers, including myself, that use yield spread premium to the benefit of the borrower. In my opinion, an effective requirement of the bill would be to prevent mortgage brokers from receiving yield spread premium and charge a mortgage broker fee. The bill should propose a mortgage broker is to be compensated in the form of yield spread premium or a mortgage broker fee not both.

Although you feel the elimination of yield spread premium will benefit sub prime borrowers what you're actually doing is making the cost of obtaining financing for sub prime borrowers more costly.

I respectfully request you reconsider your proposed Predatory Lending Bill.

I hate when politicians take a strong stance on something they do not truly understand. Whether he knows it or not, should this legislation pass it will provide less options to subprime borrowers with regard to mortgage financing. I'm awaiting a response but not holding my breathe.