Guest Post: Housing Wire on Mortgage Reform

Unless you’ve been living under a rock, you know that Senator Dodd has come out firing in favor of industry reform — what you might not know (yet) is that the legislation he intends to propose will seek to legislate a fiduciary relationship between borrower and broker. It’s an idea that has become the Holy Grail of mortgage reform on Capitol Hill as of late, with Democratic Senators Hillary Clinton and Charles Schumer having recently made their similar agendas known in this area.

What is a fiduciary relationship? From Wikipedia:

A fiduciary duty is the highest standard of care imposed at either equity or law. A fiduciary is expected to be extremely loyal to the person to whom they owe the duty: they must not put their personal interests before the duty, and must not profit from their position as a fiduciary, unless the principal consents. The fiduciary relationship is highlighted by good faith, loyalty and trust …

At Housing Wire, I get all sorts of press releases sent my way each day. When I read Senator Dodd’s proposal, I couldn’t help but think about an earlier release I’d seen from the National Association of Mortgage Professionals — which called for brokers to be voluntarily held to just such a standard.

The battle here should be intense. I know the MBA has come out against having brokers held to a “suitability standard,” which in part includes a fiduciary responsibility to borrowers ( see my post on this from January). I also seem to recall a regional spokesperson from the Colorado Association of Mortgage Brokers pushing back against a mandated fiduciary relationship as recently as a month or two ago.

IMHO, what will be more interesting to see in coming months will be the public versus private debate that is already beginning to take shape. Organizations like the NAMP want the industry to police itself and establish a fiduciary responsibility standard privately, while numerous legislators are out to use their public powers to force such a relationship into play.

Who wins? Time will tell, but two things seem certain to me: first, the NAMP will have some well-known industry company on its side soon, and the active broker lobby will finally be letting go of its inane “we aren’t in the business of looking out for borrowers, we’re in the business of providing access to funds” line.

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[Source: Blown Mortgage]