Brokers face new set of guidelines

Residential mortgage brokers may soon have a new set of guidelines to follow when dealing with their borrower clients. At least that's the objective of a new resolution approved by the Residential Board of Governors of Mortgage Bankers Association.

The board wants more clarity and accountability in transactions handled by mortgage brokers. It also wants more net worth and bonding requirements for brokers. It's an attempt to minimize broker-related problems and enhance the quality of service to consumers, thus boosting their public image.

"This resolution is a step in MBA's call for better disclosures and more transparency in mortgage transactions," said MBA Chairman Kieran Quinn. "The borrower is best served when he or she has a clear understanding of who their mortgage broker is working for and how their broker is compensated."

The new resolution calls for legislative or regulatory action requiring brokers to maintain a minimum financial net worth consistent with Federal Housing Administration requirements -- currently $63,000 plus $25,000 for each branch office. MBA also wants brokers to carry bonding worth $75,000 or an amount equal to 10 percent of the broker's annual loan volume (whichever is higher).

There should be timely and improved disclosures about the services to be performed by the mortgage broker, the resolution stressed. Brokers should disclose the total compensation they receive from the transaction before the borrower commits to the mortgage broker. Disclosures should include how much of the compensation will be derived from the lender based on the loan terms and how much will be paid by the borrower in direct fees.

Finally, it should be disclosed to borrowers whether or not the broker is acting as the borrower's agent, and if the broker is acting as he or she should be treated as an agent under the law, the MBA resolution stated.

Q: Are mortgage applications on the increase?

A: With mortgage interest rates remaining at historically low levels, and even declining recently, more mortgage applications are coming in from home buyers and those who want to refinance their existing mortgage. An increasing number of consumers are seeing today's market conditions as a "window of opportunity" for applying for a mortgage.

"Reports of weaker consumer spending and a decline in manufacturing activity is keeping mortgage interest rates at bay," said Frank Nothaft, chief economist for Freddie Mac, a major buyer of mortgages. "Rates for long-term mortgages are little changed, while rates for ARMs lowered following the Federal Reserve's latest interest-rate cut. With mortgage rates remaining low, about 38 percent of applications are for refinance transactions.

"During the third quarter of this year, about 87 percent of refinanced loans were for loan amounts that were 5 percent or more higher than the original balances."

Also, Freddie Mac estimates that families withdrew about $60 billion in home equity over the third quarter, down from about $81 billion during the second quarter.

Send inquiries to Jim Woodard, Copley News Service, P.O. Box 120190, San Diego, CA 92112-0190. Questions may be used in future columns; personal responses should not be expected.