Both Federal and State governments are on a bit of a tear lately to impose more regulations upon the mortgage industry. Easy target I suppose. Of course this happens every time foreclosure levels increase. And, it’s not going to be over for a while yet. I’m not saying that this can’t be a good thing, but usually passed regulations only result in …
Lenders being forced to:
1. Incorporate more forms (that no one ever reads anyway)
2. Tighten their lending standards (denying many people loans resulting in a depressed housing market)
3. Increasing their overhead and expenditures (especially the compliance department)
Someone has to enforce these bills —- more bureaucracy. And, who do you think the increased costs will be passed on to?
DESPITE what I just wrote I do give great credit to all those that have passed meaningful legislation. The consumer has benefited tremendously. Regulators still have an important role in monitoring the banking industry. The lure of money always brings out the occasional scheme and criminal. However, we are now at a point where legislation can not make effective broad sweeping changes because the real problem is this:
1. Unfavorable terms result in higher compensation (the more unfavorable the more money lenders and brokers make)
2. The government can’t affix a price for a product or service (all they can do is make a ceiling —- right now a sort of universal law among wholesale lenders is the most they will compensate a broker or their retail arm is 5%.)
3. The real estate industry has a death grip on 6% for buying / selling a home.
The good people of America have, through their representatives on the Federal and State level, decided that this is too much money to pay (someone making $15,000 for providing a loan on a $300,000 property). But, like I said…. their hands are tied. Why are percentages used in determining the “value” of the services provided? Shouldn’t the value of providing a mortgage be the same for a $100,000 loan and a $300,000 loan?
So, Here is the Next Paradigm Shift in the Mortgage Industry
The internet is fast becoming the solution to the problem. One of the real problems in the mortgage industry is the cost of advertising. Because there is so much money involved there are currently over 500,000 mortgage professionals nationwide. With that much competition you must be aggressive in your advertising. Want to know the cost of advertising (that must be passed on to you)? The average between direct mail, internet leads, radio commercials, telemarketing is between $1,500 and $3,000 per closed loan.