The word is getting out on mortgage brokers more and more everyday.
On April 9, 2009, the New York Times Editorial Board saw fit to take the time to walk folks through it.
Too many brokers were far more interested in earning fat fees for steering their clients to ruinously priced loans that the borrowers could never hope to repay. … Lenders were, of course, complicit, happily issuing high-priced loans to people with little or no hope of repaying them. But it was often the brokers who steered borrowers away from affordable loans and toward the high-priced loans in the first place.
“Predatory Brokers”, New York Times Editorial, April 9, 2008
Not that there has ever been much love from the mortgage bankers toward brokers, but the Morgage Bankers Assocation took the gloves off and came out with a publication for folks to keep under their pillow: “MORTGAGE BANKERS AND MORTGAGE BROKERS: Distinct Businesses Warranting Distinct Regulation.” The mortgage bankers want to make sure everyone knows they are not brokers in terms of their relationship to the borrower, compensation and disclosure requirements. They list some recommendations:
- Borrowers receive clear disclosures of brokers’ responsibilities and compensation;
- Mortgage brokers who claim to be or act as borrower agents be treated legally as agents; Mortgage brokers have sufficient financial resources — through a national minimum net worth requirement — to provide protection to borrowers and mortgage bankers where necessary;
- Mortgage brokers be appropriately bonded to give consumers greater protection; and
- All loan originators, including mortgage brokers and mortgage bankers, be appropriately licensed and registered in accordance with rigorous standards.
Of course the last one is easier to agree with since it is already the law — the SAFE Act (passed as a part of the Housing and Economic Recovery Act of 2008) requires all originators to be licensed. See SAFE description by HUD. Funny thing is the mortgage bankers are fighting the thing on some of the details in the state houses.
But back to the brokers — they are losing business other ways besides the general financial crisis they helped create. For example, Chase will not lend money to a borrower with a broker anymore (or at least when they decide to change that practice) and PMI Group, one of the largest mortgage insurance businesses, is refusing to insure loans that started with a broker. See New York Times article. Given that brokers at one point originated 80 percent of the mortgage loans, their market share will still be significant after these changes, and if market conditions warrant Chase, PMI and others will be back using brokers again. Moreover, for the present brokers who once had many different lenders to work with, now have far fewer which spells even more trouble for borrowers who are persuaded to use a broker.
That’s an important fact for consumers looking to buy or refinance a home. With fewer lenders to choose from, it’s harder for brokers to insure you’ll pay the lowest possible interest rate and fees.
“Mortgage brokers have fewer lenders to work with“ by Interest.com
This is why reforms are needed now, rather than later. Instead of passing legislation that puts a duty on mortgage brokers to put the interests of their clients first as many states have done or in the process of doing, Congress is looking to at least partially ban the practice of lenders giving brokers kickbacks — affectionately known as “Yield Spread Premiums” or (YSPs). See article. This is certainly a good start given that the Federal Reserve was looking to a variety of fixes and pulled back a proposal that would merely have given borrowers improved disclosure. See ForeclosureBuzz article.
Filed under: National Foreclosure News
