Last Tuesday I published an Op-Ed in the Boston Globe about mortgage companies that pay brokers to sell higher priced mortgages to customers. (E.g., a customer qualifies for a 6% mortgage, but the mortgage company pays the broker a higher fee to sell him a 7% mortgage.) I called the payments “bribes” paid by the mortgage companies to the brokers to boost mutual profits at the expense of the homeowner. I was in good company. The Vice-President of the Fannie Mae Foundation called them “kickbacks.” After the op-ed was published, I was flooded with hate mail. It was so bad that when there was no let up by the end of the third day, I thought I might have to change my email address.
Some of it was funny (“your stupid”), weird (“I thank God my son went to BU instead of Harvard”), or silly (“you must be a Communist”). But most of the correspondence fell into three main buckets:
- This never happens; you are making this up
- This happens sometimes, but it is a few-bad-apples problem
- We all do this; it’s how we make money
There were some very thoughtful comments. Several brokers correctly pointed out that the banks have ways of doing the same thing, but it is even less visible. Others said the disclosure has become a bad joke that doesn’t help anyone. The most interesting letters were from the ex-brokers who said they couldn’t stand making money by jacking up mortgage rates for families already stretching impossibly hard to buy homes, so they quit.
A letter to the editor this morning was restrained by the standards I’ve seen on my email. The president of a mortgage company made two points: Only a small number of brokers do this (Bucket Two above), and it is all disclosed up front. (I checked with another broker today who said that the full YSP is not disclosed until, at most, 24 hours before closing, and then only if the buyer knows to ask, and nothing in the disclosure links the payment to the broker with the fact that the rate is higher than the one the buyer would qualify for).
The letter also argues for Buyer Beware Big-Time. It seems that it is the customer’s responsibility to police the broker to make sure the broker isn’t cheating.
I don’t have any data, but I’m willing to believe that the practices I described are not the norm and that most brokers are ethical agents. But shouldn’t the ethical brokers want regulations that shut down the unethical brokers? Why be forced to compete with someone who cheats? And why not work to build a good reputation for mortgage brokers everywhere?
