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Yield Spread


On April 7, 2011, the Federal Reserve Board enacted a new rule that fundamentally changes the way mortgage loan originators can be compensated.  The rule seems straightforward enough; loan originators cannot be compensated based on the terms or conditions of the loan.  As with most legislative rules – and by the way this required no congressional approval, the Fed simply enacted the rule – unintended consequences will be unknown for some time.  The intended consequences are to prevent loan originators from steering borrowers to a loan product for the sole purpose of increasing the LO’s compensation.

I’ve been originating mortgage loans for almost twenty years.  Mortgage lending is THE most competitive commodity business I have ever been in, and if my loan terms and conditions were not competitive, I simply would not get the loan.  We have had rules and laws implemented over the years that effectively prevent steering borrowers to higher cost loan products without the need for a new rule.  What this new rule does, in my opinion, is to give the big banking institutions a much more competitive advantage, because the rules don’t apply to them.  Smaller mortgage companies could handily beat the terms and conditions offered by the big banks, because our overhead was a fraction of theirs, their overhead tied most directly to the obscene salaries and bonuses paid to their top executives, the same executives that gambled and won that they were too big to fail.

My second full length novel, Yield Spread, is the multi-generational family story of JP Mallot and his son Jimmy, and how bankers can rip off the public, regardless of the rules.  All it takes is greasing the right palms, contributing to the right PACs (political action committees). Yield Spread is not a classic story arc; it takes a ninety degree ricochet just when you think things cannot get any worse.  I hope you enjoy it and I hope it gives you pause about the human condition, and the inevitability that unless we can somehow change the way we treat money, unlikely, the end results will please no one except the top 1% of our population, and could prove disastrous.

I have a friend from Mexico that laments the fact that everyone wants to talk about corruption in his country.  He says, “The US has simply institutionalized it.”  I’m hard pressed to argue.

I know I’m paranoid, but am I paranoid enough?

1 comment »

  1. Roger says:

    I just read the article, “A Dirty Business” in The New Yorker. Author George Packer covers in detail the investigation and successful prosecution of Raj Rajaratnam in the biggest case of insider trading ever tried. As this sort of white collar crime becomes easier, law enforcement pushes the limits, in this case using wiretaps that the defense attorneys argued, unsuccessfully, violated Rajaratnam’s right to not be subject to unreasonable search and seizure.

    I thought Packer summed it up quite well: “The market has become more of an exclusive gambling club for the very rich than a level playing field open to the ordinary investor.”

    Two radio pundits were discussing this case, and one of them commented that this should cut down on trading on inside information. The other said, “No, but it will cut down on sharing that information by phone, or at least by a phone that can be tapped.”

    See the article at

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