The Department of Housing and Urban Development issued a long-awaited proposal Wednesday that would clarify the rules on mortgage broker compensation.
Under the proposal, homebuyers would get an "honest lending contract" when they first meet with a broker. The one-page document would detail the broker's fees and legal obligations to the borrower.
The contract form would enable consumers to "shop around and find the best deal," Housing Secretary Andrew Cuomo said in a statement. As a result, homeowners would save millions of dollars a year, he said.
Mortgage broker compensation has been hotly contested for years. In the past 24 months, more than a dozen class actions have been filed against lenders, claiming they violated the Real Estate Settlement Procedures Act, or Respa, when they paid brokers additional fees for facilitating higher- rate loans.
The lending industry recently won several of these disputes, either defeating bids to turn suits into class actions or persuading judges to dismiss the cases outright.
Mortgage industry officials said the proposal does not go far enough.
"It doesn't address what we've wanted to know for 10 years: Is compensation paid by a lender legal under Respa?" said Jan Hix, president of the National Association of Mortgage Brokers. "We desperately want an interpretation."
HUD's proposal would "complicate the regulatory environment" by adding paperwork, said Ron J. McCord, president of the Mortgage Bankers Association of America and of American Mortgage and Investment Co., Oklahoma City.
The proposal was sent to Congress Wednesday for 15 days of review. It will then be published in the Federal Register, and the public will be given 60 days to comment.