Florida Mortgage Brokers: Friends or Foes?

The debate over how to deal with a surge in defaults on home loans is raising a question that consumers ought to consider: Is my Florida mortgage broker really working for me?
Borrowers often see mortgage brokers as their allies, searching far and wide for just the right home loan at an attractively low price. But many Florida mortgage brokers are making it clear they don’t see things that way.

They are fighting efforts by federal and state politicians to impose a fiduciary duty on them to put their customers’ interests first, as lawyers, real estate agents and financial planners generally are required to do with their clients.

“The mortgage broker does not represent the borrower,” says Chris Holbert, president of the Colorado Mortgage Lenders Association. “We sell access to money.” The industry group recently opposed language in Colorado legislation that would have required mortgage brokers to act “primarily for the benefit of the borrower.”

That provision was later deleted.

Brokers, most of whom are lightly regulated by state agencies, are involved in originating around 60% of all home loans, according to Wholesale Access, a research firm in Columbia, Md. The industry is under scrutiny in Washington and state capitols because rogue brokers have been accused of contributing to the spike in mortgage defaults and foreclosures by encouraging borrowers to take risky loans and by charging excessive fees.

That doesn’t mean consumers should shun all brokers. Many provide good service and can help people sort through the complexities of choosing a Florida mortgage loan. Consumers don’t necessarily get a better deal by going directly to lenders, which also can charge excessive rates and fees.

To protect yourself, one strategy is to shop for a home loan directly at a few lenders and then see whether a broker can find a better deal. When choosing a broker, borrowers should ask tough questions first. Among them:

• In searching for loans, do you feel obliged to put my interests ahead of yours?
• Exactly how much will you earn on this loan?
• And how many lenders do you check regularly for Florida mortgage rates and terms?

For now, most states lack any legal provision spelling out whether brokers have a fiduciary duty. Many brokers sell a relatively small range of products without being obliged to make sure the consumer gets the best terms known to the broker on a suitable loan.

They receive fees - often totaling between about 1% and 3% of the loan, but occasionally even more - for finding customers and guiding them through the loan process. These fees come either from borrowers or through payments from lenders known as yield-spread premiums, or YSP, or through a combination of the two.

SOURCE: The Wall Street Journal