California Jerry Brown Settle with Bankers to Kill Off Small Mortgage Brokers

Settlement vs Advanced Fees

Fairbault MN,Daily News, January 1, 2010, Countrywide Settlement Administrator, Rust Consulting, Inc., share information with the press early in January 2010 that while it seemed to be doing a service for the public, multi state attorney generals including California Jerry Brown, managed to take the heat off of Countrywide, Washington Mutual and IndyMac while focusing on mortgage brokers instead.

An old rule was dusted off and raised as allegations against thousands of California mortgage brokers. In an area were trust is key, allegations were painted in the press for hundreds of mortgage brokers. Was this a cover up?

At the center of the controversy, was how lenders authorized payments and compensated their broker networks for services.

The open understanding of the settlement was that lenders were to be held responsible to compensate borrowers for any damages commercially caused in the lender broker network. Bank of America spokesperson said that they chose the settlement and a start point to eliminate relationship with the large number of affiliate and reduce as close as zero fees to all brokers.

In a domino effect, lenders dropped brokers and arranged to have consumers deal directly with their retail centers. There the compensation could be hidden aside normal branch compensation models.

Did Jerry Brown and other attorney generals cause brokers to request advance fees with this settlement?

Well, if so, should all of the blame fall on the mortgage brokers?

Let’s examine this closer. For nearly 20 years, lenders would pay for the services of brokers who prepared, collected and submitted applications for home mortgages. When home mortgages needed to be modified, lenders elected to not pay any fees for their services.

So client, who always worked with mortgage brokers, asked the very same set of brokers to represent them with their lenders for a loan modification.

With little to no profit for the lenders, the process was driven by small armies of independent mortgage brokers. Why advanced fees? The work involved in packaging and submitting a loan modification is tedious and time consuming. Mortgage brokers work with processor who generally were salaried personnel. Without fee revenue from the lenders, the client seemed to be next in the picking order.

Should the settlement dollars go to loan modification firms? Is the blame for taking advance fees from the client a sole crime of the thousands of mortgage brokers, who for years were never alleged to be committing any crimes, fall on the fees of the settlement.

Advance fees is not the issue. The real issue is that the lender are not providing compensation to the active brokerages who package their requirements. The attorney generals need to include the lender who held the loans that need modification side by side with the honest mortgage brokers who were always affiliated with those same lenders.

As California stands today, the percentage of foreclosures is the highest in the nation. Attorneys who saw loan modification and ripe as bankruptcy, were all stopped in their shoes, when California law in October eliminated ALL Advance Fees for loan modification. In fact, the Department of Real Estate, is also involved in killing off the services. Very few mortgage companies are in the position to help clients with problem loans.

If you ask the experts, they would say that if you have a hardship in California, and a loan modification could help, good luck, your attorney general has already been paid.