National Association of Mortgage Brokers President Harry Dinham, CMC and NAMB Consumer Protection Chair Kate Crawford testified before the Federal Reserve Board in Atlanta in early July. A common theme during their testimony was the need for a group effort by government, the mortgage industry and consumers to address the continuing issue of predatory lending and the need to create a simpler mortgage process with clear disclosure of all fees for consumers.
Dinham stated, "Unfortunately, many industry critics have blamed all of the problems that consumers face with the current shopping process, products offered and disclosure issues on the industry alone. In so doing, they simply ignore the vital role that government and consumers have throughout the loan origination process."
He further outlined his thoughts on the role of the three segments in addressing predatory lending:
Dinham said that the country has seen a great expansion in the mortgage finance industry over the past few years, adding robust competition and expanded product choice. However, this has also led to a corresponding rise in the number of uneducated and unlicensed brokers. He noted that while states are increasing requirements for brokers, they continue to exempt officers of banks and lenders from meeting license requirements.
Dinham added that licensing is important because while most consumers don't know the difference between a banker and a broker, they need to have the assurance that they are using an educated originator, no matter which lending channel they choose.
In addition, he said that providing licensure requirements for every originator, including a criminal background check to weed out bad actors, is a vital role that the government plays in protecting consumers and that government must also work with industry and the consumer community to improve price and fee disclosure.
"Unfortunately, the approved disclosure documents for rate, fees, costs and points can be confusing and overburdened with legalese. In addition, only mortgage brokers disclose all costs to the consumer," said Crawford, in remarks that echoed Dinham's testimony. "Until there is a uniform way to disclose costs and everyone is fully transparent about their fees, it will continue to be difficult for consumers to comparison shop in a meaningful way."
She also noted that NAMB has long advocated for a simplified good faith estimate that mirrors the HUD-1 closing statement, which most homebuyers see when they complete the loan process. By aligning these documents, customers would be able to ensure that the deal they signed up for is the same deal they see at the closing table.
The industry must remain innovative and knowledgeable about its business and follow a strict ethical framework that is enforced within the business community. Dinham noted that NAMB members are required to follow a strict code of ethics and that the association is developing a grievance process for customers to follow if they feel they have been wronged in the mortgage process. He added that every originator needs to make sure that their potential customer receives transparent information about the loan they are seeking so the consumer can make the most informed decision possible.
Finally, Dinham noted that consumer education is the long-term key to addressing many of the predatory lending issues that people face today. He advocated early financial literacy education and the allocation of real dollars to make this a reality. During her testimony, Crawford also addressed the importance of financial literacy education, adding that the association continues to support early financial education, starting in middle school, as a long-term solution to addressing mortgage fraud. She stated that educated consumers are less likely to be drawn in by fraudulent lenders.
In his closing remarks before the Federal Reserve Board, Dinham said, "I believe if we all take part in this process, we can be successful at eliminating predatory lending practices. The measures that I testified about today are careful to accomplish this goal without robbing this innovative and dynamic industry of the ability to remain a free and capitalistic market that has brought affordable credit to more social and economic classes than ever before in the history of our consumer credit system."
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