HUD: Under CFPA Brokers Would Have a 'Vested Interest'

The creation of a Consumer Financial Protection Agency would ensure that loan brokers have a vested interest in the performance of mortgages they facilitate, according to HUD secretary Shaun Donovan. The CFPA could end "abusive" yield spread premiums and impose a "duty of best execution" on brokers to make sure they put borrowers into affordable mortgages, the Department of Housing and Urban Development secretary told a Consumer Federation of American conference. In addition, the broker's fee could be paid over time, instead of in a lump sum at the closing table, giving brokers "skin in the game" the secretary said. The National Association of Mortgage Brokers top lobbyist Roy DeLoach said NAMB has a long-standing policy against abusive YSPs that act as incentives for brokers to steer borrowers into riskier, higher cost loans. He noted that NAMB supports a provision in a House-passed bill (H.R. 1728) that prohibits incentivized YSPs. As long as the broker's fee can be financed inside the interest rate, "we are supportive," he said. However, NAMB believes brokers should be paid at closing. In terms of best execution, the NAMB lobbyist noted that wholesale lenders, not brokers, underwrite and approve the loans. "The lenders have all the information we have before the loan goes to close," Mr. DeLoach said.