Mortgage brokers contest rules proposed by HUD

Journal Record, The (Oklahoma City), Oct 8, 2002 by Ray Carter The Journal Record

Proposed rules that could soon be implemented by the federal Department of Housing and Urban Development have mortgage brokers crying foul, saying the new rules could destroy their industry. The proposed rules impact the mortgage application process and are intended to simplify the process. But brokers say the rules, as currently written, impose new burdens on mortgage brokers that are not shared by other mortgage loan originators.

"The system is kind of broken and it can be better," said Joseph Falk, immediate past president of the National Association of Mortgage Brokers. "We can do this better. Our problem is that the solution that HUD came up with unfortunately disadvantages one origination channel over another."

A'Kos Kovach, president of the Oklahoma Association of Mortgage Brokers, said HUD officials "don't understand what a mortgage broker does" and the proposed rules reflect that fact.

"They think we're nothing but glorified order takers," he said. "So they -- in their infinite wisdom -- have decided to put their thumb on us, require us to do all kinds of disclosures, all kinds of time-consuming fact-finding and record keeping."

Although the form used to generate a "good faith" estimate for mortgage loans currently runs one page in length, the new rules will increase it to four pages, officials said.

Armond Cosenza Jr., president of the National Association of Mortgage Brokers, said that form will require itemization of all charges and fees, which sounds good in theory but is difficult to provide. For example, he noted that mortgage rates change daily and even hourly, and can certainly swing dramatically between the time someone applies for a loan and the time of actual approval.

Mortgage brokers also say the proposed rules exempt mortgage bankers from those disclosure requirements. As a result, bankers can provide quotes that appear lower than the estimates provided by brokers.

"It's not apples to apples," Cosenza said.

He said the proposed rules would allow mortgage bankers to "get away with hiding information away from the consumer."

The rules would also allow brokers to provide a "guaranteed mortgage contract" rather than provide the itemized list, but that is also difficult to do, officials said.

Officials also said the proposed rules are needlessly complicated.

"It's over 90 pages and it's written in arcane language that it takes a true professional to understand, so it's not user-friendly, it's not consumer-friendly," Falk said.

Cosenza said brokers simply want "a level playing field" where all parties are treated the same, whether a person is a mortgage broker or mortgage banker.

"This proposed rule definitely creates an unlevel playing field," he said.

Today, mortgage brokers generate 60 to 65 percent of all mortgage loan originations, Kovach said.

The HUD proposal has been in development for years, but was just unveiled in July. A period for public comment will end Oct. 28. After that, HUD officials may seek to revise the rules based on public feedback, or simply implement the rule as it currently exists.

Mortgage brokers are organizing across the country to mobilize the industry and flood HUD with comments on the new rule in hope of convincing officials to rewrite the rule.

"There's no doubt that if this proposed rule went into effect in its current form, that we could potentially lose 30 or 40 percent of our members," Falk said.

He said most members of the National Association of Mortgage Brokers employ five or fewer, and said only the largest lenders would benefit from the new rules because of declining competition.

Kovach said as many as 200 brokers in Oklahoma could be driven out of business as the result of the new rule.

"You take 200 brokers out of the food chain in Oklahoma, you're talking about the processors, the receptionist, the people that work for them, you're talking about the appraisers that do loans for them, the title companies," Kovach said. "There's a domino effect here."