If passed, the bill would give banks a huge advantage over brokers, non-banks
With the announcement of proposed changes to Basel III, there has been a renewed interest in how banks may return more heavily to mortgage lending, and how that might impact mortgage brokers.
While there is some uncertainty about how much banks would want to get back into mortgage lending, it doesn’t mean that brokers and independent mortgage banks (IMBs) aren’t already battling banks on a local level.
A piece of legislation at the state level has Illinois mortgage brokers and non-banks concerned, and one industry veteran said brokers in other states should keep a close eye on this bill’s potential passage.
Bob Perry (pictured top), executive director of the Illinois Mortgage Professionals Association, is concerned about Illinois House Bill 0744, named the “Small Business Financing Transparency Act.”
If passed, it could impose new fees and regulations on independent commercial brokers and non-banks that banks would be exempt from. It also creates new disclosures, which could be confusing to customers.
“In a nutshell, you’re creating an unlevel playing field,” Perry told Mortgage Professional America. “That’s really one of the critical things. The other thing is that the ecosystem that’s being state-designed, as proposed in this bill, is going to create a whole new separate set of disclosures from the consumer viewpoint.
“That’s going to create a substantial amount of confusion because if you go into a federally chartered institution and then into a state-licensed institution and find a completely different set of documents. Those documents that they’re looking to design would resemble residential-style disclosures.”
Fees, disclosures, and a new database
These disclosures, required by brokers and non-banks, would mirror residential disclosures, including an APR calculation. This would not be required by banks, which means customers shopping around likely would note that the newly calculated APR is higher than the bank’s listed interest rate, giving the banks an unfair advantage. Right now, it’s harder for banks to compete with what brokers offer, Perry said.
“The term APR is not used in commercial lending,” Perry said. “So how is anybody going to compare a loan apples to apples? So, how it impacts our lenders is that from a wholesale basis of DSCR and other small commercial lending, mortgage brokers in the state have used that to increase their business opportunities. We’re good at it.
“We also offer better pricing on a wholesale basis than the banks. Traditionally, banks have their own way of doing things and their own way of pricing stuff, as we all know.”
The bill also creates a commercial financing database in section 165, which brokers and non-banks would pay to maintain through their fees. It also explicitly states that the “department may use the information in the database without the consent of the recipient or the registrant.”
“This bill also increases the expenses to the state of Illinois for administering the program,” Perry said. “We’re the only one that has the anti-predatory lending database left in the country. They get a report every six months from the Illinois Department of Financial and Professional Regulation. And if you study those reports, it’s clear that this bill is no longer needed. But that said, they want to create a brand new one for commercial lending.
“I can’t think that private business people want to have all of their business information collected by the state of Illinois. Who is asking them for their permission? I mean, on every level that you could take and look at this bill, it’s just bad legislation, end of story.”
A turf battle for brokers
Perry is shining a light on this issue, not just for brokers in the state of Illinois, but nationwide. The combination of banks getting more involved in lending, with more states taking on enforcement and oversight of mortgage lending, should have everyone paying close attention to legislation being suggested.
He said they found out that this particular bill was being pushed by an out-of-state group. And he doesn’t understand why it’s necessary when there are federal laws governing commercial lending.
“A legislator received an email from one of our members objecting to this, and then they passed it on to the Responsible Business Lending Coalition,” Perry said. “I believe they’re based in California. You’re not creating transparency with your particular position in support of this bill. What you’re doing is creating a whole new ecosystem of lending. And do you want that in all 50 states, which all have separate ways of doing things?
“That’s why there is federal law for commercial lending, not state. We’ve tried to do our due diligence, as you could see reading this bill, and I find it atrocious.”
Perry’s organization started as the Illinois Association of Mortgage Brokers in 1987. He’s been through these battles before, and this is just the latest one for brokers to fight in the state.
“I’ve described it to our members as a turf battle,” he said. “They’re seeing DSCR loans and similar products to small business lending being done by residential mortgage brokers. For obvious reasons, when business is slow, you have to look to new sources of revenue. We understand what it takes to stay in business.
“I myself was a mortgage broker banker. I have a good relationship with our regulator. And I would tell you that I think this is a turf battle. I think it is banks trying to choke their competition because they see it taking some of their share.”
Any brokers who would like more information about this bill can contact Bob Perry via email at bperry@ilmpa.org.
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