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Brokers and client's interests

As of 2007, in the United States the federal law and most state laws do not assign a fiduciary duty on mortgage brokers to act in best interests of their customers.

As of 2007, in the United States the federal law and most state laws do not assign a fiduciary duty on mortgage brokers to act in best interests of their customers. An exception is California, where a 1979 ruling of the Supreme Court of California did establish fiduciary duties of mortgage brokers.[1] This means that consumers, in states other than California, may be charged excessive rates and fees and are encouraged to do some shopping around prior to any agreement.

Predatory lending and Mortgage servicing fraud

Predatory lending runs unregulated in the mortgage services industry. Consumers are often victims of predatory lending, according to CNN.

Some signs of predatory lending include:

  • Falsifying income/asset and other documentation.
  • Not disclosing Yield spread premium or other hidden fees BEFORE the settlement/closing.
  • Failing to provide all RESPA documentation, i.e. Good Faith Estimate, Special Information Booklet, Truth in Lending, etc so the borrower may clearly understand the mortgage terms and lender policies.
  • Convincing borrowers to refinance a loan without any true benefit.
  • Influencing a higher Loan Amount and inflated appraisals (usually in tandem with an appraiser).
  • Unjustly capitalizing on a borrowers relative ignorance about mortgage acquisition.

Another unethical practice involves inserting hidden clauses in contracts in which a borrower will unknowingly promise to pay the broker or lender to find him or her a mortgage whether or not the mortgage is closed. Though regarded as unethical by the National Association of Mortgage Brokers, this practice is legal in most states. Often a dishonest lender will convince the consumer that he or she is signing an application and nothing else. Often the consumer will not hear again from the lender until after the time expires and then they are forced to pay all costs. Potential borrowers may even be sued without having legal defense.

All text of this article available under the terms of the GNU Free Documentation License (see Copyrights for details).

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