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NAR Power Broker Roundtable: The CFPB’s 3 Percent Cap: What’s ahead for Big Brokers?

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AA000047The Power Broker Roundtable is brought to you by the National Association of Realtors® and Steve A. Brown, NAR’s Liaison for Large Residential Firms Relations.

Moderator: Steve A. Brown, Liaison for Large Residential Firms Relations, NAR
Panelists: Mark Steele, Pres., Financial Services, Howard Hanna Real Estate, Union, N.J.
Gerry Griesser, President, Trident Group, BHHS Fox & Roach, Phila., Penn.
Tim Wilson, President, Affiliated Businesses, Long and Foster, Chantilly, Va.
Bill Plattos, Exec. Vice President, First Team Real Estate, Irvine, Calif.

Steve A. Brown: On January 10 of this year, as large brokers are well aware, the Consumer Financial Protection Bureau’s (CFPB’s) Qualified Mortgage (QM), or “Ability to Repay rule,” went into effect. The rule, which stems from the Dodd-Frank Reform Act, tightens underwriting standards, ostensibly in an attempt to stop consumers from getting mortgages they can’t afford and to protect lenders from making risky loans. While the NATIONAL ASSOCIATION OF REALTORS® (NAR), and brokers, support the intent behind the QM rule, there is great concern about some of its provisions—notably, the 3 percent cap it places on fees and origination costs provided by broker-affiliated businesses. How, exactly, is this impacting brokers who provide affiliated services? What does it mean for consumers? And what can we do to protect our interests, and those of customers, going forward? For answers, we’ve invited some industry professionals with specific expertise with this timely issue. Mark, how does the 3 percent cap affect you?

Mark Steele: The rule states that the points and fees we can charge for title, mortgage insurance, and other affiliated services cannot exceed 3 percent of the loan amount on loans above $100,000. The higher the loan amount, the less impact there is— and since the majority of our loans are in the range of $150,000 or less, we are severely impacted by this cap. In many cases, we’re forced to either reduce the fees we need to charge or hand over some portion of the business to outside companies. That is hugely discriminatory against the larger, diversified brokerage.

Gerry Griesser: Yes, especially since the fees we charge are generally no more, and in many instances less than the fees charged by outside companies. But the cap does more than reduce revenues. It clearly discriminates against full-service companies who’ve built a reputation for providing the customer with a one-stop shopping experience.

Tim Wilson: It’s no favor to customers, either. It not only takes away their right to choose, it undermines the whole concept of the seamless home-buying transaction.

Bill Plattos: As we all know, most buyers prefer the one-stop shop. It’s time-saving, efficient, and cost-effective. And the fact is, we have established a relationship with our customers built on trust. They trust us to make sensible decisions that will be in their best interest.

Steve A. Brown: Yes, and it’s that kind of relationship that keeps customers coming back and referrals continuing to flow in. So in the simplest terms, it seems the 3 percent cap could cost us customers as well as revenue. Where do we go from here, then? Are we going to be forced to cut our fees or abandon our affiliates in order to comply with the rule?

Gerry Griesser: I don’t think anyone’s planning to abandon our affiliates. They’re too important to our business strategy and, worst case, we’ll learn how to deal with it. But there is a bill set to go before Congress—H.R. 3211, the Huizenga-Scott bill, which NAR fully supports—that will remove some of these discriminatory practices and help level the playing field. The Senate companion S. 1577, is authored by Senators Manchin and Johanns.

Mark Steele: Among other things, it would fix the title portion of the rule. That’s especially important, because the cost of title insurance varies according to state regulations. Often the state itself sets the charges so it makes very little sense to discriminate against affiliate title agents. As pioneers in the one-stop shopping strategy, we see this bill as a must, not just to support our business strategy, but to strengthen customer relationships.

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