New rules to let brokers suggest a lender spur rift

November 29, 1992|By M. E. Malone | M. E. Malone,Boston Globe

Bankers hate them and say they threaten consumers. Realtors are pleased and say consumers will benefit.

At issue is a set of regulations from the federal housing agency, due to take effect Wednesday, governing how real estate brokers refer homebuyers to other services.

One of the technological innovations of the last decade allows real estate brokers to access information about mortgage lenders and rates on a computer terminal with prospective homebuyers sitting in their offices and, in some instances, to help them begin the application process.

But with the technology comes the potential for abuses, which the Mortgage Bankers Association of America hoped the new regulations would address. But the association says the regulations do not do so.

Robert O'Toole, senior staff vice president for residential finance at the Mortgage Bankers Association, said the new regulations let real estate brokers charge prospective homeowners fees for doing what the consumer can do alone -- linking up with mortgage lenders. In addition, there is no requirement that the realty firms offer consumers the full range of options available to them.

Critics of the new regulations say a mortgage lender could pay several realty firms to carry information in their computers about only that lender's loans. Prospective homebuyers might then be steered to a certain lender, regardless of rates and services, while paying the broker a fee for the "service."

"From the consumer point of view, it gives an awful lot of power to the real estate agent at the time when the borrower is most vulnerable," Mr. O'Toole said.

But the nation's Realtors are pleased with the government regulations, which they say will let consumers "one-stop shop" in buying a home and securing a loan. Realtors envision a system whereby some homebuyers could obtain preliminary approval of loans without leaving a broker's office.

An official with the Department of Housing and Urban Development, which developed and published the new regulations, said the agency is for now "adopting a hands-off policy" on the computerized loan origination systems. The official spoke on the condition of anonymity.

"There's an overall feeling that the whole home-buying process has been very inefficient," he said. "A buyer needs six or seven different services, and there's no coordination, no packages available."

He also pointed to safeguards for consumers in the regulations. Real estate agents must disclose in writing their fees for services and inform consumers when the real estate firm is affiliated with the lender, title insurer or other service firm to which they are referring a homebuyer.

Paul Harrington has perhaps a unique view of the situation. As president of DeWolfe New England Mortgage Services and a board member of Massachusetts Mortgage Bankers, Mr. Harrington said he understands the concerns of mortgage lenders.

But DeWolfe is also in the real estate business, and from that point of view, Mr. Harrington can see the merits of the new regulations.

"HUD is really recognizing what is going on in the marketplace and is allowing these services to be provided to consumers as long as consumers are fully informed about what their choices are and what it's going to cost them," Mr. Harrington said.

And while DeWolfe's real estate interests tell customers of the sister company's mortgage brokerage services and disclose the links between the two, Mr. Harrington said, DeWolfe's real estate brokers do not offer financial advice or take mortgage applications from customers.

But that is precisely what may happen in real estate agencies across the country, mortgage lenders fear.

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