WASHINGTON — A new disclosure form is in the works that could go a long way toward letting borrowers know exactly where their mortgage originator’s allegiance truly lies.
Is it with the lender that actually funds the loan, or is it with the consumer who pays an origination fee to obtain the mortgage? Or is it with neither the lender nor the borrower?
Perhaps as soon as this weekend, but certainly sometime in the near future, the National Association of Mortgage Brokers will proffer a model form that describes the various relationships mortgage brokers and loan officers might have with their clients, and asks them to check the option under which they will be working.
Once initiated and signed, the form either does or does not create a fiduciary bond between the borrower and the broker or loan officer. And if it does not — if the originator is operating in any way other than as the full agent of the borrower — the consumer will be forewarned that the broker or loan officer might not have his best interests at heart.
It is only when the originator operates in full allegiance to the borrower that the borrower can be assured the originator is his agent and his alone, working on his behalf no matter the source of compensation.
A broker is someone who gathers information that lenders need to approve a mortgage and shops the application among various lending institutioins; a loan officer works directly for the funding lender.
If any of this sounds familiar, it should. It is exactly where the real-estate-brokerage business was, say, 30 years ago. That’s when the concept of buyer-brokers was merely a light bulb in the minds of a few pioneering real-estate professionals who believed home buyers needed someone to work for them and only them.
Back then, buyers believed that the agent who so dutifully drove them from house to house to house was “their” agent, when in fact the smiling, friendly salesperson was duty bound to act on behalf of the seller as the subagent of the agents who actually listed all those houses for sale.
Nowadays, real-estate agents in most states are required to disclose their allegiance: They work on behalf of the buyer or the seller, both the buyer and the seller, or neither the buyer nor the seller but rather as an intermediary or facilitator with no fiduciary responsibility to either party.
Such full and complete disclosure is so commonplace these days that it is easy to forget that the real-estate business had to be dragged, kicking and screaming, into agency disclosure over the better part of three decades.
If it is, the NAMB’s “Role of the Mortgage Originator” form could go a long way toward protecting unknowing borrowers from being led into loans they can’t handle. And possibly giving them some kind of recourse against predatory originators who violate their trust.
That mortgage brokers are offering the model disclosure form is not without some irony. After all, it is brokers who are most frequently accused of preying on borrowers who trusted their originators to get them the best deal possible, given their own particular circumstances.
To be sure, brokers bear a good share of the responsibility for the mortgage mayhem that now threatens to force millions of borrowers out of their homes, because they can’t make the payments on loans they never should have taken in the first place. But in truth, there is plenty of blame to go around.
From borrowers who didn’t do their homework to funding lenders who all but disregarded their underwriting rules, from builders and real-estate professionals who looked the other way to investors who couldn’t get enough of a good thing, from Wall Street middlemen who never saw a loan they didn’t like to rating agencies that weren’t as diligent as they should have been: They all own a piece of this disgraceful pie.
Now, though, lenders have tightened their purse strings by once again adhering to their guidelines. And loan brokers will soon be stepping up to the plate with a model disclosure form.
While it may seem unnecessary to explain the role of a loan officer — after all, it is difficult to miss the fact that he sits behind the desk at XYZ Mortgage Co. or ABC Bank of Podunk — it is absolutely imperative to detail the relationship of a mortgage broker, who, like a real-estate broker, operates under a large tent and can pick and choose his own business model.
Once a box is checked on a disclosure form, the nature of the relationship between borrower and originator is out in the open. There can be no hiding behind smiles and handshakes.
Lew Sichelman has been covering real estate for more than 30 years. He is a regular contributor to numerous magazines and housing and housing finance industry publications.