Mortgage brokers are in Congress' sights

From McClatchy newspapers:


WASHINGTON — Mortgage brokers, who originate up to two-thirds of home loans, have exploited their lack of federal regulation to loosen lending standards in ways that sparked today's high mortgage-default rates among borrowers with weak credit.


Hearings before Congress this year made it clear that mortgage brokers and nonbank lenders took advantage of a regulatory gap to make unsound home loans to people with the weakest credit history, preying especially on minorities and the working poor.


Now Congress must decide how best to bring brokers, who originated about 70 percent of so-called sub-prime loans over the past two years, under some form of federal regulation.


The Mortgage Bankers Association, in its latest report, found that during the first three months of this year about 15.75 percent of sub-prime adjustable-rate mortgages were behind on payments by 30 days or more.


That's an all-time high. And the figure is widely expected to grow. Experts predict that 1 in 5 sub-prime adjustable-rate home loans - as many as 1.5 million - will default by the end of next year. More than $2.28 trillion worth of adjustable-rate loans reset from 2007 to 2009.


Mortgage brokers are often the first link in the process of securing a home loan, so many borrowers think the brokers are working for them.


Wrong. No federal law says mortgage brokers have any fiduciary duty to borrowers, and with the exception of California, most states don't stipulate that duty either.