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Mortgage Brokers: Oversight From Hindsight In Plain Sight

Its been a long time coming.

There is now a movement at the federal government level [1] to create oversight of the mortgage broker industry [2].

US Representative Barney Frank introduced legislation yesterday that would establish for the first time close federal supervision of mortgage brokers, who have become the dominant providers of home loans – particularly the subprime loans at the heart of the foreclosure crisis.

Whether or not this legislation passes, this industry needs oversight and not self-policing. The majority of residential mortgages are being issued through wholesale channels (mortgage brokers). There are certainly excellent mortgage brokers out there but the system needs checks and balances.

As it relates to appraisals, I have always contended that the person who is paid a commission on the issuance of a mortgage to a consumer should have no say in assessing the loan quality. There is too much of a chance for self-dealing.

Bank of America announced today that it will cease lending through wholesale channels. [3] Translation: no mortgages through mortgage brokers.

WaMu tried to be proactive to preempt more regulation [4] from coming down the pike.

The company’s new rules apply to its loans marketed through 19,000 independent mortgage brokers, among other outlets, but not through its own branches. Earlier this month, it began requiring brokers to verify that they have disclosed key loan terms, spelled out in simplified language. Washington Mutual will also call borrowers before the mortgage closes to review the terms.

The Federal Reserve consumer panel made [5] recommendations today including:

There’s still a lot of marketing goin’ on. [6]

It struck me as a little fishy but at about the same time, the White House was also busy [7].