This morning Seattle-based Washington Mutual unveiled a new set of standards for mortgage brokers to adhere to, largely focused on improved disclosure.
The bank said it would require mortgage brokers to supply evidence that they provided disclosures to borrowers early on in the loan process in an effort to “help ensure that borrowers fully understand the terms of the loan their brokers are requesting in addition to the total compensation the borrower will pay to the broker for their services.”
These disclosures include, “key terms of the loan requested by the broker such as loan amount, loan term, whether the interest rate and mortgage payments may change, and whether the borrower’s pricing package carries a prepayment fee…”
The new measures will also force brokers to make their compensation more clear to borrowers upfront, another disadvantage they face, as banks avoid similar disclosure because they don’t need to reveal profits until resale on the secondary mortgage market.
According to the new set of rules, brokers must tell borrowers early in the application process “the amount of all compensation the borrower will pay the broker for their services, including broker points, or administrative or processing fees, and whether the broker has requested a yield spread premium.”
“WaMu will not close or fund the loan without signed confirmation from the borrower that the key terms of the loan have been disclosed to the borrower by the broker early in the application process,” said company spokeswoman Sara Gaugl.
Washington Mutual is also launching a direct call center, and plans to have a representative call each borrower represented by a mortgage broker prior to loan closing to review key terms directly with the customer.
“We believe our mortgage broker standard and direct call program should become the new industry benchmark for brokers and lenders across the nation,” said Kerry Killinger, WaMu Chairman and CEO.
“By adopting these standards, together we can increase consumer knowledge of the home loan process and bring about positive, meaningful change to the mortgage industry.”
The move by WaMu comes at a time when mortgage brokers are under fire because of statistics revealing that many loans originated by the group performed poorly and/or were deemed high-cost, largely because regulation was more difficult to monitor.
And the push to improve borrower disclosure seems to echo recent statements made by Fed Chief Bernanke, who had promoted the idea as a solution to the fragmented lending environment.
“Our wholesale business is an important component of our lending strategy and we value our relationships with the high-quality and customer-focused brokers we do business with,” said David Schneider, WaMu’s Home Loans President.
“We believe that brokers will embrace this standard because an educated and informed consumer is the best customer for both WaMu and brokers alike.”
Countrywide released a series of e-mails to mortgage brokers over the last month in an effort to address the quality of brokered loans, though the move did more to shift blame than actually focus on the core problems the mortgage lender faced.
The mortgage industry continues to point the finger at mortgage brokers, despite addressing their own high-risk practices which brokers simply resell.
The question remains whether the new changes will have any real impact, or simply create another speed bump.
The changes will go into effect on October 9th.