We are a wholesale lender but have been allowing brokers to charge a mortgage broker fee. HUD has hit us with paying back mortgage broker fees on loans that have gone through QC in Texas. This appears to be a very slippery slope!

Consider that RESPA specifically exempts the payments to the LENDER’s AGENT or contractor.

I do not believe that RESPA can preempt state law or even determine that the state law is inconsistent with RESPA when there is already an exclusion for one party (the lender). Clearly, disallowing fair compensation of a borrower’s exclusive agent would put consumers at a disadvantage and would conflict with 24 CFR 203.37 (5) (e).

This section of the Code of Federal Regulations pertains to allowable costs on FHA transactions and specifically preserves the right of the borrower to deal with a mortgage broker who does not REPRESENT the mortgagee and pay compensation that is acceptable to the borrower in order to obtain financing. Clearly, Congress intended that the borrower be able to procure their own representation as the FHA approved broker is always the AGENT of the Mortgagee (lender).

While banks may be exempted from certain state laws, mortgage brokers are governed by the laws of their individual states which are not preempted (for the broker) even if the transaction involves a federally insured loan. Furthermore, Federally regulated lenders must still comply with Federal laws.

This issue is not so much about federal regulations or inconsistencies between state laws and RESPA so much as is about HUD recognizing agency representation for the borrower as a compensable service, fair and equal application of RESPA to all costs (including borrower’s broker), and a formal acknowledgment that some brokers are intermediaries that sell access to money while others are fiduciaries.

However, as long mortgage broker fiduciary duty is curtailed, there is no hope of reform for the mortgage industry.

Thanks for your post, you raise an important issue.

Lenders regulated by the federal government are not bound by state rules. States are impotent when they have rules which conflict or are contrary to federal guidelines under the concept of preemption.

Please continue to post with us.

I was specifically waiting for a ML to address this issue. Mortgage Brokers in California owe borrowers a FIDUCIARY DUTY as per California State Supreme Court. Under the California Business and Professions code, the brokers function as agents and owe borrowers fiduciary duty.