In Brief: HUD to Propose Broker Fee Disclosure

The Department of Housing and Urban Development is expected to unveil a controversial solution Wednesday to a long-simmering controversy over mortgage broker compensation.

The department will propose requiring mortgage brokers to tell borrowers in advance how high fees and interest rates could get, sources said.

Broker compensation has been a hotly contested issue for years, one which culminated recently in a string of class actions against lenders. Lenders, these suits alleged, had violated the Real Estate Settlement Procedures Act, or Respa, when they paid brokers additional fees for steering borrowers into higher-rate loans.

To exempt themselves from the disclosure requirement, brokers would have to identify themselves in each loan transaction as either a representative of the borrower, who receives no compensation; a representative of the borrower, who may receive some compensation from the lender; or an independent contractor, who is paid by the lender.

According to a statement released Tuesday, the new rule would "save American homebuyers millions of dollars." Housing Secretary Andrew Cuomo is expected to be joined at the announcement by two homebuyers who paid excessive fees-a move that rankles the mortgage industry.

Inviting individual borrowers shows a "Jack Kemp-like love for press releases, rather than a commitment to the underlying substance of an issue," said Laurence Platt, a lawyer at Kirkpatrick & Lockhart here.

Sources said the Mortgage Bankers Association of America had been slated to endorse the rule but decided it was too controversial.

Security around Mr. Cuomo is expected to be especially tight. According to a report in The Baltimore Sun, the American Civil Liberties Union reported that an anonymous caller said there is a contract out on the housing secretary's life.

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