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1.3.2.2 Mortgage Broker

Traditionally, mortgage brokers acted as an intermediary between borrowers and lenders. They did not originate loans. Instead, mortgage brokers were merely middlemen bringing home purchasers or homeowners and lenders together. Brokers operated on behalf of borrowers and attempted to find them the best loans available. This type of arrangement created a special duty on the part of the broker to act in the best interest of the borrower.13

Over the years, the role of the mortgage broker has become much more complex. While some brokers continue in the traditional intermediary role, others have taken to originating loans with their own money; by using “table funding”14 from a prearranged buyer of the loan; or by using a line of credit from a bank, financial institution, or other entity. The fact one person acts as both broker and lender in such transactions complicates the broker-borrower relationship. In these situations, brokers often are working in their own best interest rather than finding the loan product best suited to the borrower’s financial needs and abilities. Home improvement contractors and manufactured home dealers may act as brokers as well. In this capacity, they usually prearrange with a lender to funnel loans to customers who need financing.

Mortgage brokers have been subject to varying degrees of regulation under state law. In 2008, Congress enacted the Secure and Fair Enforcement Mortgage Licensing Act,15 also known as the SAFE Act. .The SAFE Act instituted a nationwide system for licensing and registering “loan originators,” including mortgage brokers. Under the SAFE Act, mortgage brokers must participate in pre-licensing and continuing education, must pass a national exam, and must meet specified bonding requirements.

Footnotes

  • 13 {13} See § 9.2.6, infra.

  • 14 {14} Table-funding is the process whereby a loan is closed in the name of the original lender, typically a mortgage broker, and the loan funds are provided by an investor who takes assignment of the loan immediately. HUD recognizes that the true lender in this situation is the funder of the loan, meaning the entity to whom the loan is initially assigned after settlement. See Reg. X, 12 C.F.R. § 1024.2 (definition of “lender”).

  • 15 {15} Pub. L. No. 110-289, tit. V, 122 Stat. 2654 (July 30, 2008). See National Consumer Law Center, Mortgage Lending § 3.3 (2d ed. 2014), updated at www.nclc.org/library.