March 9, 2004

The Honorable Dereck E. Davis, Chairman 

Economic Matters Committee

Lowe House Office Building, Room 150 

Annapolis, MD 21401

Re: Support for House Bill 858 - Credit Regulation - Mortgage Brokers - Fees

Dear Mr. Chairman and Members of the Committee:

The Maryland Consumer Rights Coalition, Inc. is a non-profit education and advocacy organization that promotes equity and fairness in the consumer marketplace. We support House Bill 858 - Credit Regulation - Mortgage Brokers - Fees.

The Finder's Fee Act is intended to protect consumers from the often unscrupulous practices of mortgage brokers. In theory, a mortgage broker helps a borrower find the best mortgage loan available and acts in the best interest of the borrower. In practice, many mortgage brokers put borrowers into high cost loans, because the higher the cost of the loan, the greater the broker's fee.

A particularly egregious practice of some mortgage brokers and lenders, which is not addressed by the Finders Fee Act, is lender kickbacks to the broker for bringing the loan in at a higher interest rate or higher fees. The kickbacks work like this: the lender informs the broker that the loan has been approved at a 15% interest rate, however, if the broker gets the borrower to agree to an 18% rate, then the lender and broker split this additional money. Of course the consumer is never informed that he or she is eligible to receive a lower interest rate. If the broker was honest with the consumer, he would state, "Would you like to pay a 3 % higher interest rate so the lender and I can make more money?" It is hard to believe that any consumer would ever agree to the higher rate, if it was actually disclosed to him or her.

HB858 prohibits a broker who accepts a fee from the consumer from also accepting a fee from the lender based on the interest rate or points. It also provides that a broker who accepts a fee from a lender based on interest rates or points is an agent of the lender and must disclose this fact to the borrower. This bill provides very common sense protection for consumers, who rightly believe that the mortgage broker who they are paying should be acting in their best interest. For these reasons, the Maryland Consumer Rights Coalition urges you to give HB 858 a favorable report.

Cheryl Hystad