Question

Mortgage brokers generally provide their services free of charge to interested borrowers, and are instead compensated by lenders. a) How might this arrangement lead to a conflict of interest? b) What legal rights does a client of a mortgage broker have? (Outline the key requirements of relevant legislation, regulation and industry/professional codes of practice that apply to relationship management).

Answer 1

a) Mortgage brokers don't earn salary but they are compensated by way of commission they receive from the lenders. This commission or fees depends upon the lenders. However this arrangement can lead to a conflict of interest. This conflict can arise in cases like a broker may promote a home loan with a lender as that lender might have offered a generous commission over other lender who might be offering a low commission , irrespective of whether or ot it's the best product for the borrower's needs. Brokers who charge fees charges an upfront fee instead of an earning commission from the lender, thus they will be recommending only suitable products that is based on the borrower's need.

b) The legal rights that a client of a mortgage broker :

The federal government regulates the mortgage industry. RESPA prohibits the real estate agents from receiving any kickbacks and it also prevents lender from demanding the borrowers to use preferred title insurer. The federal government have set some rules which requires the lender to treat borrowers fairly and equally. Consumers can file complaint about the lenders via the website and reach CFPB. This website provides the borrowers numerous tools to address lending complaints. The borrower can also contact the federal reserve, Federal deposit Insurance Corporation and the National Credit Union Administration.