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MBA Seeks Different Regulations for Brokers
By Bonnie Sinnock & Brad Finkelstein
The Mortgage Bankers Association has issued a policy paper backing its position that legal/regulatory efforts in the wake of the recent market crisis should make distinctions between mortgage bankers and brokers in four areas based on differences in their roles.
The MBA's position runs counter to the National Association of Mortgage Brokers' longtime assertion that there should be a "level playing field" where legal and regulatory efforts are concerned.
David Kittle, the MBA's chairman-elect and president of Louisville, Ky.-based Principle Wholesale Lending Inc., indicated during a May 20 teleconference that the association has taken brokers' concerns into account in its position.
"We just want transparency," he said. "Many of our members are brokers. I have no problem with what we are promoting here today."
The MBA argues that because mortgage brokers' and bankers' roles are different in terms of - for example - how they represent themselves to borrowers and how they are compensated for their roles in the business, they warrant different oversight.
"In their marketing, brokers often position themselves as 'trusted advisors' who will shop among mortgage bankers and arrange for the best loan," the MBA said in its position paper. Consumers alternately perceive a mortgage banker as "knowledgeable source of information about their own loan products and the mortgage process."
As a results of such differences, the MBA said in a press release it wants brokers to disclose "responsibilities and compensation" and to be "treated legally as agents" if they "claim to be or act as borrower agents." The MBA also wants there to be net-worth and bonding requirements for brokers.
As far as minimum net worth, the MBA specifically considers the Federal Housing Administration's $63,000 requirement appropriate, MBA senior vice president of government affairs Steve O'Connor said, during the teleconference. He said this is a "reasonable barrier to entry" and "much less" than may be required of a mortgage lender. A mortgage banker must have a $250,000 net worth to be an FHA-approved mortgagee, according to the MBA's position paper.
MBA officials said they are not asking for a fiduciary duty to be imposed on brokers but asking them to voluntarily declare whom they represent and, if they say they are acting on behalf of the borrower, only then taking on legal responsibility for doing so. If the broker "asserts or acts in a manner that indicates he or she is shopping for the borrower, the borrower should be subject to the duties of agency," the MBA said in its position paper. The report in a footnote defines agency as "a fiduciary relationship created by express or implied contract or by law, in which one party (the agent) may act on behalf of the other party (the principal) and bind that other party by words or actions."
National Association of Mortgage Brokers president George Hanzimanolis called the report "a shameless ploy to take the target off their back and point the finger at somebody else." In an interview, he addressed some of the things he said the report did not cover. This included what he said was the mortgage bankers' culpability in the subprime crisis. Mr. Hanzimanolis said everyone in the chain had some role in contributing to the situation. However, the mortgage bankers did not address their part. Mortgage bankers developed the products, gauged the acceptable risk, promoted the product, underwrote the product, approved submitted loans and priced them in the secondary market. These issues, he said, were not covered in the paper. Mr. Hanzimanolis brings an interesting perspective to the argument because his shop, Bankers First Mortgage, Tannersville, Pa., is both a mortgage banker and broker.
In 2001, NAMB created a form that most of its members use, a voluntary disclosure that spells out the relationship between the consumer and the broker, including that the broker is not the agent of the consumer.
NAMB, he notes, is the only trade group that has created such a form. Whether he acts as a banker or broker on a specific deal, this form is given to the customer. Mr. Hanzimanolis added that in either role he knows what the secondary market outlet is for the loan, what he will receive in compensation from the purchaser and the like. The only difference is one loan is funded directly by the purchaser, the other is funded from his warehouse line.
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