In an effort to eliminate discriminatory pricing of home mortgage loans, the federal government now imposes a raft of regulations on how mortgage brokers can price loans and charge for their services. The new rules have not eliminated discriminatory pricing, but they probably have raised mortgage broker fees.
Mortgage brokers are independent contractors who find borrowers, counsel and qualify them, take their loan applications, process the paperwork and deliver the package to a lender who funds it. Brokers usually deal with multiple lenders. Loan officers, while they perform much the same functions as brokers, are employed by a single lender. Collectively, they are “loan originators,” or LOs.
Historically, many if not most LOs charged borrowers what they could get away with, since their compensation was tied to the charge. The result was that some borrowers paid more than others for no better reason than their LO’s powers of persuasion. LOs were basically equal opportunity overchargers — they did it whenever they could get away with it. However, for a variety of cultural and other reasons, their behavior had disparate effects on different groups. Bottom line, black and Hispanic borrowers paid more than white borrowers.
This situation was much noted but little was done about it until after the financial crisis, when the political environment became hostile toward brokers. They were viewed as willing accomplices in the process of saddling consumers with mortgages they could not afford.
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