Mortgage Broker Reform Could Limit Consumer Options

Starting April 1, a federal law will change the way mortgage brokers earn their pay. Advocates say the rule prevents needless mark-ups on loans that pad brokers' incomes. However, critics argue the law hurts consumers by narrowing the marketplace and funnels more customers to fewer lenders.

Don Hagan, vice president of Arizona-based mortgage bank Wallick & Volk and 30-year veteran of the industry, says that the spirit of the law, which is aimed at protecting consumers, is sound.

"If it works out perfectly it won't change the average, but it will stop the abuses at both ends," says Hagan. "It neutralizes compensation as it relates to loan terms."

But Hagan adds that the law could reduce market competition as smaller mortgage-broker operations are forced to revise their business models. The law means brokers face increased regulatory expenses, and it limits sources of commission revenue.
"The big lenders will enjoy more advantages with this," he says.