Market Update Dodd Frank Financial reform

From my friend Dan Shaw at  Peoples 928.710.9146 cell 480.248.1199  fax



Back to school, back to work and dreaming of that vacation time. I hope summer has been good to you. Seems it  has been a very “business dry” summer but home sales seem to be picking up a little. Sales still seem to mainly be around or below $100,000 and many are investors and cash. Many of the lot sales around our area seem to be speculators. This could actually be a good sign. Cutting edge investors tend to lead and create a market. It is the uneducated investors chasing results that screw up a market.

On the economic side, economists are predicting a double dip recession in much of the country. On a positive note, the dreaded double dip list of cities and states seems to over look Arizona. I mean really, how much more of a recession could we take? I looked at the map and am intimately familiar with one of the cities targeted for the double dip. Missoula Montana, as some of my friends and loyal readers know, is the home of my oldest son Adam, who just graduated from the University of Montana Law School. So I have spent some time there and looked at homes. Missoula doesn’t seem to have been as severely hit with economic downfall over the past few years. They have had much new commercial expansion which has created new(minimum wage) jobs in a relatively low income area. So perhaps they are due to join the rest of us now? Well that business growth sounds good? But not so if you are looking to create jobs for a city! When setting a plan for cities and states to grow their job market and create new jobs,  you need a good mix. Our past Governor, Janet (don’t blame me the border was safe when I was in Arizona)Napolitano, took credit for creating a lot of jobs. Unfortunately, they were largely minimum wage jobs with Walmart, and Kohl’s expansions. To be economically sound a city or state needs to create a good mix of minimum wage jobs and high income jobs. The high income employees, tend to support, the arts, theaters, education, sports, dining etc, which in turn creates more jobs. Is everyone with me on this? Let’s recap. People with money, tend to have more discretionary income which they bring to the economy. If we tax these people to death, they won’t have as much to spend. Nuff said?

If I hear one more person say we need money for education, I am going to scream! A friends daughter told me yesterday, that her college Spanish book for this semester at ASU….one book, cost $200. Why? Why is there not a revolt against the universities. As tax payers we fund millions of dollars each year to the universities in this state who in turn take advantage of our kids. I went to ASU and Grand Canyon, both for business, want to know what I learned?  They screw you at the universities! Someone needs to slash their funding and let them work as the huge business entities that they have become. If they go under, so be it. We have the University of Phoenix, and others.

This week, we had a very important ruling for loan officers. The Dodd – Frank financial reform Act (which is kind of redundant, knowing those two) takes Yield Spread Premium away from loan officers for pricing.


The Federal Reserve Board on Monday announced final rules to protect mortgage borrowers from

unfair, abusive, or deceptive lending practices that can arise from loan originator compensation

practices. The new rules apply to mortgage brokers and the companies that employ them, as well as

mortgage loan officers employed by depository institutions and other lenders.

Today, lenders commonly pay loan originators more compensation if the borrower accepts an

interest rate higher than the rate required by the lender (commonly referred to as a "yield spread

premium"). Under the final rule, however, a loan originator may not receive compensation that is

based on the interest rate or other loan terms. This will prevent loan originators from increasing their

own compensation by raising the consumers' loan costs, such as by increasing the interest rate or

points. Loan originators can continue to receive compensation that is based on a percentage of the

loan amount, which is a common practice.


Now while this sounds heroic in theory, this was a method used buy loan officers to help buyers and realtors. Yield Spread Premium or YSP is often used to help pay for fees involved in a loan that could not be paid for by the buyer. Let’s first explain how loan officers get paid. For our example, a customer asks  for a rate quote and receives a 5%(1.375YSP) or a 4.75%(.375YSP) with one point. In both cases the loan officer is trying to earn 1.375% of the loan amount. The 5% rate offered (for our example) means the lender will pay 1.375% to the loan officer for doing the loan. If the loan officer works for a bank the bank will typically keep most of that, up to 70%. A loan officer working for a Broker or lender other than a bank will keep about 60 to 70%. So the customer is offered options of a lower rate with a point, or a higher rate with no points.

Where this bill misses the mark, is with loans where the borrower may not have enough money to pay the closing costs. Let’s use an example of VA which is becoming more popular as troops return. A Vet is not allowed to pay regular fees from the lender or the title company. However, those fees still exist as neither are non profit organizations. Lenders in the past, will use a higher rate which allows the loan officer to make more YSP. Using our example above the loan officer may quote a rate of 5.25%(1.875YSP) In turn that extra YSP is used to pay for fees the Vet cannot pay for. Without YSP the sellers will now have to bare that cost for Vets. See where I am going? Not many sellers are going to be very happy about paying a couple thousand dollars in extra fees, and will most likely will pass on offers from buyers using a VA loan. It will make the practice of asking the seller to pay closing costs, more common. Now let’s think about that. Who are most of the sellers… got it …Banks! How many banks seem willing to help with closing costs? Are you still with me. And if you are thinking this doesn’t effect you, YSP was also used to hide the fees in the “no cost loans”.

This is a poorly written bill. Barney Frank is almost single handedly responsible for the disaster we are living with in real estate today, and in my opinion needs to find one of those jobs at Kohl’s or Walmart.

I hope you all have a great week full of sales and should you or your customer need help with financing please pass along my name and number.



This is not the opinion of Brad Bergamini, Realty Executives Northern Arizona or any of its affiliates.  This post is for informational purpose only and is not guaranteed and does not render as legal advice.  Buying and selling Real Estate in Arizona or Prescott Arizona is a serious task and should be consulted with personally with Realtor or Real Estate Attorney.  Please visit my website for contact information or