I question HUD’s assumption–and by extension your figures–with respect to $700 savings per transaction consumer can expect. Exactly where will this come from? Lender fees, appraisal, title escrow–what we call “third party fees” are not generally negotiable items. That really leaves broker fees, and Yield Spread Premium (YSP) in particular as the focus. Certainly this is the spot where bad loan originators have traditionally hidden part of their commission from view, but I’m not buying the estimate.

With respect to adoption of the new rule, banks have already begun requiring similar disclosures as we speak, and I’m convinced most will have this in place by the end of Q1 2009. Wells Fargo and Vertice (Wachovia Bank) here in our market require new Mortgage Broker Fee Disclosure designed to starkly reveal any and all fees paid to the broker, including YSP, early in the loan process.

But bad mortgage brokers are only half the problem. Mortgage bankers–like the dude at your local BofA branch–doesn’t have to tell the consumer about all the YSP he’s stuffing into his pockets. Thank the mortgage banking industry lobby for this tilted playing field. I assume the new RESPA rule will be similarly bias.

And ironically, here is what that disparity ultimately leads: the wholesale channels for third party originations gets choked off as the industry points fingers at mortgage brokers. Mortgage brokers either become bankers or go to work for them, reducing competition in the marketplace and forcing consumers to get their mortgages from the only group allowed to gouge them by not disclosing all their fees.

Great idea; unintended consequence.