Mortgage Brokers Corruption  

As mortgage markets became competitive, the mortgage broker found a role for himself in bringing the borrower and lending institution together. Nearly 68 percent of residential loans in the U.S. are handled by mortgage brokers. They find the borrowers, qualify them and process the paperwork associated with mortgaging real estate.

Mortgage broker works as a middleman between the borrower and the lender. Since their overheads are less, they are able to offer competitive rates to attract clients.

Some mortgage brokers were reported to have been involved in mortgage fraud. The mortgage broker is primarily interested in getting his commission more than anything else. Even though he is supposed to look after the interests of the borrower who is not fully conversant with the technicalities of the mortgage documents and the financial complexities of the deal, the ignorance of the borrower is being utilized in influencing a higher loan amount. He doesn’t disclose the Yield Spread Premium (YSP) or other hidden fees before closing the deal. He also follows an unethical practice of inserting hidden clauses in contract where the borrower promises to pay him to find him a mortgage whether or not the mortgage is closed. The borrower is made to pay all costs after the expiry of the date.

The broker’s incentives are against the borrower’s interests. The broker tries to sell the mortgage at an interest rate higher than what the borrower qualifies for which is beneficial to the lender. Higher interest rate gets the broker higher YSP which he collects from the lender. This information is not known to the borrower. Such unethical practices lead to corruption. YSP is actually a payment to the broker for giving a bad deal to the borrower.

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