Why Are The Feds Overlooking Mortgage Brokers?
Jul 19th, 2008 @ 4:09 PM by Alden Smith
In a previous post I discussed the steps the Fed is taking to stop shoddy and unethical mortgage practices. I saw it as a good thing. I am troubled by the fact that the Fed isn’t rolling it out until October 2009, and, because it was of interest, decided to dig further into the concept. Some feel that the Fed isn’t taking this far enough in its stance, and others, such as the banking industry, feel it is sticking its nose in where it should have no right to go. This is all well and good – everyone is entitled, you know.
Some of what I gathered shocked me out of my complacency a bit, and some things only made me nod my head. As in all things governmental, I find that the Fed stopped short of making these new regulations effective. I applaud their effort to go after the unethical advertising and the “liar loans” but think that overlooking the role mortgage brokers play in the mortgage market is just short of criminal. According to the Fed, 60% of loans were originated through mortgage brokers in the last several years. One has to acknowledge that at least he Fed is being honest – they say that consumers “often are unaware that a broker’s interests may diverge from, and conflict with, their own interests.”
The big picture here is that mortgage brokers have their interest in mind, not the borrower. Brokers get higher compensation for placing a consumer in a higher-interest, riskier loan. A major problem has been the abuse of yield spread premiums, and instead of the Fed dealing with this issue, the Fed withdrew its proposal for even a modest rule requiring brokers to disclose whether they were getting a premium.
Studies have shown that a lot of people – 55 to 61% to be exact -have qualified for a standard fixed rate 30 year loan. But these people were steered into a higher risk subprime loan because the mortgage broker got the luxury of a higher commission. No truth in lending, no customer service, just “what’s in it for me?” And now, with the Fed turning a blind eye to these practices, they will continue their practice of ripping off the consumer.
I have said it before, and say it again – without proper and honest regulation, the troubles of the present will continue. Not only does housing and the economy suffer, but banks and brokers, if left unchecked, will still drive people to places they shouldn’t have to go. And with nothing being done to address this, it makes all the other efforts fruitless.