Improved Consumer Laws
It is common nowadays to see predatory lending being done unregulated in the mortgage services industry. According to CNN, many consumers are victims of predatory lending. The concern is that instead of operating legally, mortgage brokers and lenders find loopholes in the law to obtain additional profits.
In recent years, the laws have improved considerably regarding mortgage transactions to favor consumers. A broker must abide by law and comply with a set of standards before they can charge a fee to a borrower. The fees must meet specific qualifications, that is the combined rate and costs cannot exceed a lower percentage without being deemed a “High Cost Mortgage.” In order to charge a fee that that is above the lower percentage, a broker must provide additional disclosures and warnings of risk to a borrower. In addition, the mortgage broker would need to be more compliant with regulators. Due to this regulation, costs and fees are likely to be lower.
On the other hand, mortgage bankers are not subject to the cost reduction act. This is because the selling of loans generates the majority of lender fees, which in most cases exceeds the high cost act. While mortgage brokers must, by law, lower their fees, a licensed lender is not affected by the second portion of fee generation because of the delay in selling the servicing until after closing. Therefore, it falls under the category of a secondary market transaction and is not subject to the same regulation.
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