The End of Residential?

Posted by in Brian's Blog, Commercial Real Estate, Site News, Tip Of The Week

We just heard from a source inside Wells Fargo that they have nixed yield spread premium on all loans originated by their in-house loan officers funded on or after September 1st. According to the source Wells now defines loan originator as the loan officer and the company, therefore we fully expect them to follow suit for their wholesale unit as well. According to the same source the conference call named Bank of America and Suntrust as following suit with plans already in the works to abolish YSP as well.

Now I have no reason to doubt my source, I believe in them fully, so let’s follow this out to its logical conclusion. If Wells Fargo and Bank of America aren’t doing YSP anymore then it would follow suit that the other two big players, JP Morgan and Citi will soon do so as well. After all, you can’t have two banks with a lower cost per loan, which Wells and B of A would have since they are no longer being charged a premium for delivering higher rate loans. And since the rest of the wholesale mortgage units out there are selling to one of these big 4, then they too will have to abolish yield spread. Thus, we could very soon be faced with the real possibility of not making any YSP on any residential originated loan.

Now the effects of this are both positive and negative. The positive of course is that the big banks have essentially given back their gains over the last two years, think SafeAct & Respa Reform which targeted and inflicted much damage on the wholesale broker channel. With the abolishing of YSP for their in-house loan officers they have leveled the playing field. The big boys won’t be able to deliver a loan any cheaper than you as a broker can. On the negative side your profit per loan just got slashed at a time when operating as a broker or mortgage company just got more expensive, think licensing regulation, etc… It is hard to imagine much of a future for mortgage industry professionals without yield spread. I hope we are wrong, I really do.  But what if?

As with all things, as one door closes another opens. Might it be time for you to entertain commercial?