Mortgage brokers’ sleight of hand

Source: Elizabeth Warren* [Boston Globe]

*The following op-ed, Mortgage brokers' sleight of hand, written by Harvard Law School Professor Elizabeth Warren, was published in the Boston Globe on October 2, 2007. In the past five years, if you called a mortgage broker when you were about to buy or refinance a house you may have been told, "We can check with lots of lenders so you'll get the best price." Because you are a careful shopper, this sounds good - one-stop comparative shopping. The broker most likely didn't add, "I'll take a bribe to steer you to the loan that is more expensive for you and more profitable for the lender." A mortgage broker can offer wise advice to guide a buyer through a dangerous thicket of complex mortgage deals, but you are just as likely to encounter a broker who is working only for himself. There are brokers who take what amounts to a bribe from a mortgage company to steer a client into a higher-priced mortgage than it could qualify for, all the while assuring the client that this is the best possible deal. The practice is sufficiently widespread that the bribe has a technical name, a "yield spread premium." The yield spread premium is a payment the mortgage company makes to the broker to persuade the broker to sell the homeowner a higher-priced loan.

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