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CUOMO SAYS NEW HUD POLICY STATEMENT WILL SAVE AMERICANS MILLIONS OF DOLLARS A YEAR IN MORTGAGE BROKER FEES
WASHINGTON Ė Housing Secretary Andrew Cuomo today announced a policy statement designed to save Americans millions of dollars a year by protecting them from excessive mortgage broker fees and by encouraging improved disclosure of mortgage broker fees and services.
The Department of Housing and Urban Developmentís policy statement deals with the Real Estate Settlement Procedures Act (RESPA), which regulates mortgage loan settlement services.
The policy statement issued today clarifies HUDís long-standing position dealing with fees paid to mortgage brokers. The statement says that the compensation a broker receives from a lender and from a borrower must be reasonable for the actual work performed.
The fee disclosure called for in the policy statement is designed to make it easier for millions of homebuyers and families refinancing their mortgages to comparison shop for a home loan and save money on the fees they pay mortgage brokers to find and originate home loans.
"Mortgage brokers have a right to be reasonably compensated for the services they provide," Cuomo said. "They donít have a right to collect illegal kickbacks and referral fees from lenders, and we will continue enforcing the law against these abuses. American families shouldnít be overcharged for mortgage services and should have the clear, easily understood information they need to shop around for the best deal when they select a mortgage broker."
An estimated 6 million American households paid for the services of mortgage brokers last year, in an effort to find the best interest rate and other financial terms on their mortgages. The brokers were involved in about half the mortgage transactions in the nation in 1998 Ė worth about $730 billion. The number of families using mortgage brokers has been growing sharply in recent
Mortgage brokers frequently receive fees ranging from $1,000 to $3,000 per loan.
HUDís RESPA policy statement has the support of consumer and industry groups, including the National Consumer Law Center, Consumers Union, the National Association of Mortgage Brokers, the Mortgage Bankers Association of America, and the Consumer Mortgage Coalition.
RESPA prohibits kickbacks, referral fees, or unearned fees in real estate transactions. However, it allows reasonable payments to be made for services actually performed and for other legitimate costs.
The policy statement explains: "Mortgage brokers and lenders can improve their ability to demonstrate the reasonableness of their fees if the broker discloses the nature of the brokerís services and various methods of compensation at the time the consumer first discusses the possibility of a loan with the broker."
HUDís new policy statement benefits consumers by:
Services typically provided by mortgage brokers include filling out applications, ordering required reports and documents, counseling borrowers, and participating in loan closings. The brokers may also have operating costs to pay for equipment and office space for processing mortgage transactions.
Some mortgage brokers only represent the borrower in shopping for a loan, while others offer loans the same way other mortgage retailers do.
For their services, mortgage brokers can receive fees directly from the borrower, indirectly from the lender providing the mortgage funds, or through a combination of both. When a broker receives direct compensation, the brokerís fee is most often charged to the borrower at or before closing as a percentage of the loan amount.
Indirect fees from lenders may include yield spread premiums. Yield spread premiums are based on the difference between the prevailing interest rate and points, and the rate brokers offer consumers for particular loans.
The new policy statement issued today was developed in response to the October 1998 HUD Appropriations Act Report issued by a Congressional Conference Committee, which directed the Department to issue a policy clarifying its position on the legality of lender payments to mortgage brokers under RESPA.
In July 1998, HUD and the Board of Governors of the Federal Reserve delivered to Congress a joint report containing legislative proposals to reform RESPA and the Truth in Lending Act.
While the new statement satisfies the Confereesí directive, HUD believes that broad legislative reform along the lines specified in the HUD/Federal Reserve Board Report remains the most effective way to resolve the difficulties and legal uncertainties under RESPA and the Truth in Lending Act for consumers and industry alike.
Content Archived: January 20, 2009