New Fed rules miss one key lending abuse

Real Estate Agent with The Alan Donald Team at Keller Williams Realty SC 47887

This is amazing!

The FEDs require full disclosure and fiduciary responsibility for any money-related transaction with clients EXCEPT in the case of mortgage brokers.

They are not required to disclose UPFRONT how much they are making on the YIELD SPREAD PREMIUM, a payment made to the loan originator which normally just gets buried as a footnote in the HUD statement. And loan officers employed by lending institutions are not required to disclose it at all!

This has allowed unscrupulous mortgage brokers and lenders to steer unsuspecting borrowers into more expensive loans, to earn a larger commission on the loan, beyond what a 'reasonable" commission should be.

According to the new Federal Reserve's lending rules released last week do nothing to stop this practice! They dropped their proposed ruling on yield spread because they feared "people would be confused by it" and disclosing broker fees upfront would cause borrowers to think it would be cheaper to go directly to the lenders (which is not the case usually). It seems to me like a case of heavy lobbying on behalf of the associations of mortgage brokers.

As REALTORS, we owe a fiduciary responsibility to our clients to act in their best interest. We should be involved in the loan application process to make sure our clients are not abused.

The problem is that not every client wants our help in this regard. I recently had a client who was charged outrageous fees in yield spread, from a mortgage broker "friend" (what a friend!) and when I questioned the charges, my client got upset with ME for questioning the integrity of his friend! Talk about absurdity!

Why don't they require the same fiduciary responsibility from lenders and mortgage originators that they require from REALTORS? 


Posted by

Alan L Donald - Broker Associate, REALTOR, e-PRO
The Alan Donald Team
Keller Williams Realty
Mount Pleasant, SC
(843) 900-0155

Comments (6)

Dennis Swartz
Full Circle Property Management - Columbus, OH
MBA, GRI...experience counts!

Its all about money and politics, just like always. You would think that since we have to disclose all our fees, the lender would also.

Jul 26, 2008 11:25 PM
Darin Haughie
Esslinger-Wooten-Maxwell, Inc. (EWM) - Pinecrest, FL

I worked for a lender years ago and the rule was brokers could make up to 5% of the loan. I thought this was crazy, but many times I had to get them to lower fees to stay within the 5% rule. It is seeky tacking on the back end, I think it should be a standard % rate, 2% or what ever is deemed fair?

Jul 26, 2008 11:25 PM
Fernando Herboso - Associate Broker MD, & VA
Maxus Realty Group of Samson Properties - Clarksburg, MD
301-246-0001 Serving Maryland, DC and Northern VA

This is when invested lobbyist money pays off!

Jul 26, 2008 11:27 PM
Rebecca Schrader
Competitive Insurance of Dundee - Dundee, FL

Darin,  To say a flat rate of 2% is fair, you'd have to assume all loans are equally challenging and this is not the case.  Some loans require 10 times more time than others and 2% would make it uneconomical.  Where would this borrower go? 

Jul 27, 2008 12:04 AM
Konnie Mac McCarthy
MacNificent Properties, LLC - Cobb Island, MD
Broker/Owner - VA & MD "Time To Get A Move On!"

Well..I think one of the first places to start is require brokers to be licenesed, and have the same consequences we have when we "mess" up a deal, or act in an unethical is amazing what people will do in the name of money

Jul 27, 2008 12:20 AM
Susan Pruden
CENTURY 21 Home Center - Cheverly, MD

Loan officers and brokers don't have the same fiduciary duties that we have because no client-agent relationship is established. Borrowers are customers, not clients - no contract is signed that requires mortgage companies to look out after anyone's best interests but their own. Licensing is one step - regulation is the other. We used to have regulation in the mortgage industry - it was deregulated years ago.

Jul 27, 2008 01:36 AM