Congress Frank wants to get rid of the most important mortgage product in America.

Legislation should maintain the careful balance of banning steering while preserving a consumer's ability to finance the closing costs and origination fees associated with their loan.

As currently drafted, the anti-steering provisions in both the House and Senate bill says all origination fees must be collected either up front or all fees shall be in the interest rate - consumers will no longer have the option of paying some closing costs up front and some through the interest rate. This provision will create an interest rate "gap" for borrowers with limited funds to pay the origination charges. These borrowers will be forced to pay all of their origination charges or pay a much higher interest rate and let the lender pay the originator. Typically, this would create loans with only rates 5% or a 6% being available with nothing in between. Presently, a borrower can pay a portion of their origination charge to obtain 5.5%, a rate that would not be available under the proposed legislation. This could cost the borrower tens of thousands of dollars over the life of the loan. It is likely that it may lead to increased defaults by pushing borrowers into higher interest rates.

Pursuant to the legislation, consumers will have only two options under the language, to roll their closing costs including indirect compensation to the loan originator into the rate [financing in the rate] or paying such costs [all of them] up front at the closing table. Under existing law, consumers have the option of rolling some closing costs into the interest rate and paying some up front instead of the all or nothing approach taken by the House and Senate bills. Consumers appreciate and utilize the existing options as they want to balance their rate with their ability to pay some closing costs up front.

Many times a borrower does not have enough cash up front for closing costs and fees. In this situation, they can choose a higher interest rate, which will allow them to roll closing costs and originator fees into the rate. Many times loan programs require residual cash after the closing in order for a consumer to qualify for that particular program. In such a case, the consumer utilizes some cash at the table and pay for other costs in the rate. The new prohibition takes such an option away from the consumer. There does not seem a logical basis for this provision especially considering the new Good Faith Estimate form required by HUD and closing rules which require the originator fee to be disclosed upfront and cannot be changed.

Consumers should be able to finance closing costs and origination fees as they deem appropriate for their individual circumstances (i.e. cash available at closing, length of time planning to remain in home, refinance, etc.).

To achieve this balance, we suggest the proposed alternative below which will preserve the borrowers' ability to choose low-cost and zero-point financing for their homes, and ensure borrowers are still able to benefit from financing their closing costs at their choice.

Proposed alternative to the language:

A) Specifically, we suggest using common language from both bills (House section 9003 (c)(2) and Senate section 1074, 2(b)) with the following change: Strike 1403 (c) (2) (B) (i) and (ii) and replace with a new subsection (i) (Page 1789 of the conference base text)

"(B) EXCEPTION.-Notwithstanding subparagraph (A), a loan originator may receive from a person other than the consumer an origination fee or charge, and a person other than the consumer may pay a mortgage originator an origination fee or charge if-

(i) such fees or charges were fully and clearly disclosed to the consumer earlier in the application process as required and do not increase based on changes in the terms of the individual loan or the consumer's decision about whether to finance such fees or charges.

At this critical time in our economy's recovery, please take a few moments to contact your local media outlets and legislators.

The Complete List & E-Mail Addresses and Fax Numbers for the U.S. Congress, Governors and State Legislatures!

http://www.conservativeusa.org/mega-cong.htm

Please take a moment out of your busy schedule to contact these legislators and request that the language shown above be added to H.R. 4173 and S. 3217. Remember...these bills are currently being reconciled and a final bill is expected to be sent to President Obama by July 4th. Protect your livelihood and save consumer choice - act today!