Protection rules may hurt buyers

January 24, 1993|By James M. Woodard | James M. Woodard,Copley News Service

Mortgage lenders and brokers now face a new set of disclosure regulations designed to protect borrowers, but some industry leaders say it will have a boomerang, negative effect.

The new regulations require mortgage brokers and lenders to issue a "good-faith estimate" of all costs in a proposed loan within three working days of receiving an application. The disclosure information includes all fees paid to mortgage brokers.

"It's another layer of paperwork that does not benefit borrowers, and costs mortgage brokers and lenders additional time and money," said Jim Thompson, president of a regional chapter of the National Association of Mortgage Brokers.

"These new regulations create an unlevel playing field for mortgage brokers," he said. "But it's now the law, and we'll live with it."

The regulations, drafted by the U.S. Department of Housing and Urban Development, were announced Nov. 2 and went into effect one month later.

One of Mr. Thompson's objections to the new regulations involved referral fees paid to real estate brokers who use a computerized loan origination system, or CLO, where a real estate broker can access current loan information and submit a mortgage loan application for a homebuyer via his own office computer.

"We expected a cap of about $300 on referral fees to real estate brokers using these systems and a requirement that such a system must be open to multiple lenders in the area," he said.

"Just the opposite has happened. No caps on fees to real estate brokers has been stipulated, and a broker can deal with one lender exclusively if he so desires."

This could cause a revolt in the mortgage industry, Mr. Thompson said.

"Realtors may now give their CLO system business to the highest-bidding lender, without regard to the welfare of the buyer. This is not good for the mortgage banker, mortgage broker or property buyer. Only real estate brokers stand to benefit, and then in potential conflict with their duty to property buyers and sellers."

Such an arrangement will increase costs for consumers and boost the mortgage loan default rate, Mr. Thompson predicted.

"Homebuyers should know that they have the right to select the mortgage broker and lender of their choice. They are not obligated to use a real estate broker's computer system to find and apply for a mortgage."

The real estate industry is divided in its response to the new Real Estate Settlement Procedure Act regulations. The National Association of Mortgage Brokers and Mortgage Bankers Association are generally against it. The National Association of Realtors supports it.

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