Friday, April 1, 2011

We Have Lived to Fight Another Day (or Two)

Today is a big day.   This day, April 1, was to mark the first day of the implementation of new Federal Rule on loan originator compensation which many, including me, believe will be the death knell of our industry.  But it is a big day for me personally for another reason--today marks my thirteenth anniversary in business.  On this day, in 1998, I signed my first lease (actually a sublease) on two small fully furnished offices, and Frontier 2000 Mortgage was born.

I came to work this morning resigned to the fact that this anniversary was really the beginning of the end, only to get the happy news in my inbox that the DC circuit court of appeals granted a  us stay last night on implementation of the Fed Rule.  The subject lines of each email reflected the skepticism that the senders knew the news would greet such a shocking announcement--"Court Grants Stay--NOT an April Fool's Joke."  And even though each email specified that the information was not a prank in honor of the day for pranksters, I actually had to read several of these before I convinced myself that the news was true.

NAMB legislative chair Mike Anderson sent out a video a short while ago heralding the news.  I have attached it here for your viewing pleasure.

So what happened exactly and what does it mean? According to the information that we are getting, the Appellate Court stay was issued by Appellate Judges Karen LeCraft Henderson, David Tatel and Brett Kavanaugh.  The Federal Reserve Board attorneys have been ordered to submit their argument for the Fed Rule in not more than 20 pages no later than Monday April 4, and the attorneys for the plaintiffs, NAMB and NAIHP, have been ordered to submit their arguments of not more than 10 pages by the morning of Tuesday, April 5.  This is a short window of time since the appellate ruling could come as early as Tuesday.

I was genuinely shocked that the attorneys were able to get any sort of a stay, and I cannot overstate the importance of this action.  If you recall, Judge Beryl Howell ruled on Wednesday afternoon that while NAMB had sufficiently supported its argument that the Federal Reserve ruling would do irreparable harm to our industry and to the future of small business owners who originate mortgage loans, she also denied the request for an injunction because she says that the Fed Rule serves the public interest.

The outcome of this battle is going to have a profound impact, not only on the future of the housing industry as a whole, as sources of financing dry up, but also on the future of small businesses in general.  If the federal government can determine that an entire industry of small business owners is not serving the public interests and regulate us out of business, what is to stop them from doing the same thing to other industries in the future?  If the federal government can set and regulate the compensation for small business owners who originate mortgage loans, what is to stop them from regulating the compensation of other small business owners?

The Fed Rule is a blatant grab of the mortgage loan origination industry and a consolidation of wealth into the hands of a few banking giants.  Everyone else suffers--the community banks, the small independent loan originators, the wholesalers, and certainly the consumers who will have greatly reduced access to mortgage credit.  Home buyers are going to end up paying a lot more to get their loans because competition will be gone, home owners are going to have reduced options when refinancing and home owners who wish to sell are going to have a much smaller pool of qualified potential purchasers. 

Whether the court rules for us or against us, we need to keep our issues in front of everyone who will listen.  At a time when unemployment is high, Judge Howell's acknowledgement that thousands more people will lose their jobs if this rule is implemented is not a small matter.  Neither is the blatant disregard for the rights of small business owners in a free, capitalist society that we see in both Judge Howell's ruling and in the Fed Rule itself.  In a free society, a potential business owner complies with whatever licensing requirements are necessary for the particular industry, sets up shop and competes with others in the same field.  Consumers decide whether to reward the entrepreneur's efforts by frequenting the business or avoiding it.  No government agency, or judge, has the right to say that a particular industry does not matter because the public interest is best served by its demise. If this can happen to us, it can happen to anyone.

I don't know what Tuesday will bring, but today is a big day.

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