Matt Carter at Inman news reported today about the litigious fever spreading through the mortgage industry.

Novastar Home Mortgage seems to have hit the trifecta:  Part of a $46M judgment slapped on them as a participant in the Bankrate.com unlawful restraint of trade lawsuit filed by American Interbanc,  a class action lawsuit brought by it’s investors for not disclosing regulatory issues, and another class action suit for improper disclosure of Yield Spread Premiums to borrowers in Washington State.  Anyone who read my last article and wanted to know more about specific TILA violations that can lead to mortgage rescision, look no further right here.  It’s a white hot topic and lawyers love to play pile on…

A Novastar representative maintained they ‘appropriately disclosed YSP’s and that borrowers did not suffer any actual damages’.  Huh?  What part of selling a consumer a higher interest rate or charging more in closing costs than what was disclosed, is not damaging?  The mortgage industry needs an enema…it’s run by fools who think they’re above the law and don’t know when to shut up.  Pavlov’s canines learned quicker.

When will the light bulb turn on within this industry’s collectively dense head about disclosure issues?

It’s an industry that also has serious multiple personality issues.  Everyone sells the same products yet you have different rules of engagement for the resellers.  Brokers must disclose everything (but don’t), Bankers don’t have to disclose as much as Brokers, and Banks can pretty much keep it all on the inside…

It wreaks of greasy handed lobbyist poisoned politics.

As far as disclosing YSP’s, I have the solution:

Put a bright orange, legal sized page between the GFE and TILA  that says ‘Yield Spread Premium’ with a line for the dollar figure underneath it.  Underneath the dollar figure state:  “Use The Above Amount to Apply Towards Closing Costs”.  There, it’s disclosed, right out there for everyone to see…write it in large braille font for the blind to read as well.  No way to get around talking about it this way…

It should meet RESPA disclosure requirements and shouldn’t require an assessment by Ivy League educated pundits to discover if the new document is clear to the consumer, i.e. show the consumer the document and ask them how much money in Yield Spread Premiums were disclosed.  If they don’t answer correctly, promptly let them know they no longer qualify for a mortgage and call the No Child Left Behind organization.

The sad part is, those originating mortgages are usually not much more savvy than the consumers they serve, which is why the lending industry makes it easy for it’s resellers to tell how much in YSP is being charged.  A mortgage rate pricing sheet typically looks something like this:

OK, this is where the big math happens, so grab a calculator:  Multiply the % in the rebate column by the Loan Amount, i.e.  .625% x 300,000 = $1875.00

Ideally, a mortgage professional would simply show the consumer this chart and let them choose which rate they wanted…But they don’t.

Ideally, some ‘visonary’ would provide consumers and mortgage professionals a little tool that automatically did this to benefit and protect both parties.  Although I’m still partial to the bright orange piece of paper…