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July 14, 2008

HOEPA Proposal Change Aids Brokers

Mortgage brokers can breathe easier now that the Federal Reserve Board has dropped a controversial provision from its Home Ownership and Equity Protection Act rules that would have required brokers to disclose their fees upfront and get consumers to sign a contract. In testing model disclosures and broker contracts with consumers, Fed staffers found consumers were confused by the paperwork and often concluded "erroneously" that they would pay less working directly with a lender than working with a broker. "In the time frame that we wanted to get these rules out, we weren't able to craft something that would actually help consumers rather than confuse them," Fed governor Randall Kroszner said. However, Fed chairman Ben Bernanke has directed staff to continue working on disclosures, broker fees and yield spread premiums. "This effort is not over," governor Kroszner said. The Fed decision to drop the broker provision from the final HOEPA rule is a major victory for the National Association of Mortgage Brokers, which has claimed the contract proposal is unworkable from a practical standpoint and discriminates against small businesses.