Most people have little idea what is going on. I've blogged about this previously and the media has picked up bits and pieces of the story. Loan Officer compensation changes tomorrow! What does this mean? The bottom line is that competition is eroded and the basics of supply and demand say that costs and prices will then go up.

It has already happened in the appraisal market. Legislation reduced the number of independent appraisers and created a system where appraisals had to be ordered through an appraisal management company. Most are not aware that every major bank owns their own appraisal management company and they make a profit from every single order. You should also know that the bank owned management company pays the appraiser less for more work and effort so many of the survivors are not nearly as competent, don't put in the effort to get a better result and often submit poor quality work. Many consumers have been victimized by this legislative assistance since its inception.

Our government is looking out for you once again. All of these Loan Officers who are left standing (the industry has shrunk by more than half) are now being handed a new piece of legislation. Essentially, the law says you can derive income from the loan amount and not from the term of the loan. This eliminates the dreaded "yield spread premium" banks pay (supposedly). The ironic part of the elimination of the "term" payments in conjunction with the loan results in everyone picking the yield margin their compensation will be based on in order to get paid based on the loan amount.

Here are the likely results: Rates are going to go up across the board and banks are going to post record profits. It is interesting that large banks get an opportunity to eliminate competition, lower their wage costs and increase their profit margin. What a wonderful perfect storm the government created! I wonder what the public outcry or congressional oversight will become when Chase posts a $10 billion profit in the 3rd quarter of 2011 and Wells Fargo posts an $8 billion profit and Citi posts a similar gain. Further study of the numbers will show that the bulk of this income was derived from their mortgage operations. Don't worry, though, they'll still be crying foul about having debit card charges regulated and swipe fees reduced.

There is definite irony in the fact that this all begins on April 1 (April Fool's day) but remember, ultimately the joke is on the consumer.