Friend Or Foe?

When RESPA violations occur, it is the bank that pays the price. Because of that, we tend to think of other settlement service providers as the problem. We cast them in the role of villain - the people who get us into trouble. In particular, we tend to think of mortgage brokers much the way we think about used car dealers. "Would you buy a used house from this person?"

There are brokers - a lot of them - who genuinely care about their customers. These brokers work hard to find their customer the loan they need. They are also being smeared by the less than customer-interested behavior of some brokers.

The banks' problem is to know the difference between the good brokers and those who are simply looking for easy money. The biggest concern is RESPA. However, customer service should be a close second.

Who and what are brokers?
According to the National Association of Mortgage Brokers ("NAMB") there are more than 20,000 mortgage brokerage operations in the U.S. Also according to NAMB, over half of the residential loans originated each year are obtained through brokers. This is clearly a business trend that banks must learn to work with.

Brokers are subject to some of the same laws that affect banks. RESPA, Truth in Lending, Equal Credit Opportunity, and Fair Credit Reporting all have provisions that apply to brokers and the work they do. In addition, there are state laws, including licensing laws, that regulate mortgage brokers.

Learning about brokers
The National Association of Mortgage Brokers recently established a web site that is designed to provide unbiased information to consumers. The idea behind this website is to help customers understand what a mortgage broker can do for them. It is also designed to enable consumers to identify or report problems with brokers.

The site is maintained by Lioninc.com and is linked into NAMB's web site www.namb.org. Named "The Mortgage 101 Center", the site supports NAMB's outreach efforts. The site is now getting more than 600,000 visits per month. Clearly, this is a site that interests consumers.

The site is loaded with user-friendly home-buyer tools, such as calculators and a Q&A page. This information is important for consumers to have when they are considering how to go about obtaining a mortgage. It is also useful information for banks to use in community or customer education programs. So if you are looking for material to use in education seminars (that should count toward your CRA rating), this is a good source to visit.

Best Practices
NAMB outlines "best practices" for brokers. These are available on their website. One way for the bank to check out a broker is to discuss these best practices with the broker and assess their familiarity with and understanding of them.

The best practices are posted on www.namb.org. The practices identified include: disclosing accurate information in all solicitations and advertising, explaining financing program options, providing written information about loan costs and rate lock-in options, explaining all documents and all costs, and discussing the settlement and disbursement process.

Best practices also include charging rates and fees that are fair and non-discriminatory. Finally, the broker should maintain communications with the consumer throughout the process.

These best practices are a way to evaluate the quality and motives of brokers that bring clients to your bank. If the broker is familiar with these best practices, and understands what they mean, you may want to do business with them.

Another way to evaluate brokers is to discuss the loan with the borrower and determine how they have viewed the loan shopping and application process. If the consumer is prepared and knowledgeable, you probably have a broker that has done good work.

ACTION STEPS

Visit the NAMB web site at www.namb.org and learn your way around it. Look for tools that you can incorporate into customer service and consumer education.
Talk with your loan officers about mortgage brokers. Find out whether your bank gets loan applications through brokers and learn about the process.
Ask about fees - how and when they are collected and paid, and what the fees cover. Be very specific when you ask questions about this.
Consider any fair lending issues that may arise, such as rates and loan product availability to different customers, as a result of making loans through brokers. Include these issues in training and your compliance audits.
If you are not the CRA manager, pass on this information about NAMB so that it can be considered for use in the CRA program efforts.