Thursday, October 12, 2006

Trending Toward Fiduciary Duty To Borrowers

The trend among regulators in states such as New York, New Jersey, Ohio, and others is to make the mortgage broker, in essence, have a fiduciary duty to the borrower, according to E. Robert Levy, executive director of the New Jersey Association of Mortgage Brokers. Speaking at the group's annual convention in Atlantic City, Mr. Levy said the burden would therefore rest with the mortgage broker to select the loan product for the consumer. As a result, the mortgage broker could be held liable for making the wrong choice. He said consumer advocates are in favor of this position. Mr. Levy, who is also chairman of the advisory council of the American Association of Residential Mortgage Regulators, said it became clear in a meeting of that council that regulators were enamored with the "suitability test." However, Mr. Levy reminded the audience of New Jersey's experience with the original version of its predatory lending law, which contained a "net tangible benefits" test. That test closed the secondary market for loans in the state, and was eventually removed from the law.

Of course, this type of relationship should exist in some form. For the Mortgage Broker it only makes sense in order gain referral business. Certainly with Mortgage Brokers working within a community, such as New York City, it makes sense to fit the borrower to the mortgage if you want to keep working in the field. Perhaps some of the national lenders who rely on TV commercials to generate business will be opposed to actually knowing who their borrowers are.

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