New legislation aims to make brokers more accountable

WASHINGTON -- Federal legislation that's been languishing in Congress for more than a year requires loan originators to disclose the nature of their relationship to consumers. But a couple of rump groups of brokers are tired of waiting for lawmakers to act.

The National Association of Responsible Loan Officers believes loan brokers owe a fiduciary duty to their clients, just like attorneys and accountants. The National Association of Mortgage Professionals goes a step further, arguing that Uncle Sam should impose a fiduciary duty on originators who are either employees of funding lenders or independent mortgage brokers.

NARLO and NAMP pale in size to the 25,000-member National Association of Mortgage Brokers, which is the primary lobby for brokers. But their hearts are in the right place. While NAMB continues to wait for Congress to get off its duff, the smaller organizations have moved to put the interests of borrowers ahead of their own.

"We're tired of competing with loan officers who lie," says Robert Skrob, executive director of the Tallahassee, Fla.-based NARLO, which has roughly 800 members. "We want to set ourselves apart from every other Tom, Dick and Harry out there," adds Christopher Cruise, a Silver Spring, Md., trainer of loan originators and processors and a founding member of the group.

NAMP also says its mission is to set a higher standard for mortgage professionals to their own benefit as well as that of consumers. Which is why the Irvine, Calif.-based group is calling for legislation that would impose "a higher level" of accountability. "Given the monumental nature of the transaction, there absolutely should be a fiduciary responsibility," says founder Michael Lefevre.

At issue here is the question of just who brokers work for. Most borrowers believe the broker is on their side. After all, the broker and his client work closely together to make sure the loan application is filled out and processed properly. And the broker often recommends certain loan products over others because he believes they are a better fit for the borrower.

But in reality, the broker is the agent of the lender -- sometimes many lenders -- that funds the mortgage. While some brokers argue that they are merely facilitators who owe their allegiance to neither the borrower nor the lender, in truth, once the lender agrees to back the borrower, the agent is the one who carries out the lender's instructions and requirements.

It's not that NAMB doesn't want its members to tell their clients whom they work for. But at the same time, it doesn't want the government to impose any particular duty on brokers.

"We have a big tent," says executive vice president Roy DeLoach. "If someone wants to act as a fiduciary to the borrower, that's fine. But that's only one business model. Brokers should be required to disclose their fiduciary responsibility, but not to have a certain fiduciary responsibility."

As this all plays out, a number of other events are taking place in an attempt to restore trust in a lending system that seems to have lost its way:

-- NAMP has opened a toll-free number -- 888-680-6267 -- that consumers can call with questions about their mortgages, either current or future, without any obligation. "NAMP is here to listen, understand and help," Lefevre says. "The service is absolutely free, and no one will be solicited for mortgage financing."

-- Similarly, borrowers can use the Internet to get their questions answered. At ConsumerMortgageBureau.org, would-be borrowers can search a repository of mortgage professionals who are licensed, trained and vow to adhere to a code of ethics that calls on members to, among other things, abide by not just legal technicalities but also to serve their customers with honesty and integrity.

Originally called the Better Mortgage Bureau, the Hunt Valley, Md., service appears to be a place where brokers can pay a fee to add instant credibility to their names and companies.

-- Similar to Expedia and Travelocity, the popular travel Web sites, numerous mortgage Web sites now allow potential borrowers to search rates and terms offered by any number of lenders.

Loaninsights.com, for example, claims to contain offerings from 80 national lenders and says people can check them out for free.

The site allows anonymous and direct access to wholesale mortgage rates normally available only to mortgage professionals, who then tack on their own fees.

Acting largely as a lead generator for funding lenders, MortgageMarvel.com asks for three pieces of information -- loan amount, purchase price and ZIP code. Then it shows the rates and terms offered by numerous lenders. The figures include closing costs and monthly payments (principal and interest only).

Click on apply and you are whisked to that lender's secure application form. From there, you are on your own.

MortgageGrader.com has only 20 or so lenders in its platform. But they are all national brands, so it has just about every product covered. It does not charge lenders to be listed, and is not a lead generator. "The only way we get paid is by brokering loans that actually fund," says founder Jeff Lazerson.

Furthermore, the site is more complete. It scrubs for eligibility -- it does no good if you can't qualify for what's offered -- and returns information for only those programs in which you meet the underwriting requirements.

And it lists pricing at incremental rates rather than making you work through 10 different lenders.

Once you have reviewed the quotes from various lenders, these sites hope you will use them to apply for the loan of your choice. Visitors are not obligated to use them, but as an added carrot they say that because they operate in a virtual world, their costs are less and the savings are passed on to borrowers. For instance, Mortgage Grader charges a flat fee.

Unfortunately, these sites are only licensed in a few states, and they cannot guarantee pricing in the places where they have yet to hang out their shingles. But Mortgage Grader's Lazerson says people can price through his site and then use that "as leverage" to negotiate the best deal with someone licensed in their state.

Then there's Kutro.com, an interactive online community that allows borrowers to compare loan costs and fees with those offered other borrowers, share their experiences and rate the quality of the service.

"Borrowers for a long time now have worked in a total vacuum," says Kutro founder Wayne Faulkner. "Now we have removed the mystery by allowing the entire online community to communicate with each other."

Lew Sichelman has been covering real estate for more than 30 years. He is a regular contributor to numerous shelter magazines and housing and housing finance industry publications.