Despite the incredible role that mortgage brokers have played in steering families into unfair loans they could neither afford nor understand, the Washington Post reports that the National Association of Mortgage Brokers succeeded in having a provision that would function to deregulate the industry included a bill that passed in the House last year. Rep. Gary G. Miller (R-Calif.) authored and co-sponsored the provision, which would end the requirement that mortgage brokers be audited annually in order to deal in mortgages insured by the Federal Housing Administration (FHA). The Senate did not include this provision in its version of the legislation but the final bill is still being negotiated and, according to the Washington Post, congressional aids said that whether or not the language will be included is “up in the air.” The current requirement constitutes some of the only federal legislation regulating mortgage brokers, whose unethical manipulation of hundreds of thousands of families has contributed directly to the current sub-prime meltdown. The fact that the mortgage brokers would have the audacity to ask for this provision isn’t nearly as horrifying as the fact that the House actually included the provision. The Senate should not under any conditions cave to similar special interest pressures.

The Center for Responsible Lending has documented that excessive interest rates cost 600,000 families more $2.9 billion each year. Mortgage brokers steer families towards loans with higher interests rates than they could otherwise obtain because the brokers receive a proportional kickback, known as a yield-spread premium, for doing so. Borrowers lacking in information about the fact that they could often obtain a lower interest rate loan not only get shackled with a high-interest loan but end up actually compensating the broker who effectively manipulated them thousands of dollars for this "work". Professors Howell Jackson and Laurie Burlingame have documented how this system works to encourage brokers to steer borrowers to higher interest rate loans and argue that the practice may violate the Real Estate Settlement Procedures Act of 1974 (RESPA).

Advocates and academics generally agree that mortgage brokers need to be far more aggressively regulated, not less. Here in Massachusetts, Governor Patrick recently signed a bill creating a comprehensive regulatory framework for the state’s mortgage brokers, including more significant duties to borrowers and a licensing scheme. This seems to be the right approach; among those who played a role in creating the current crisis, mortgage brokers seem to have been among the most effective, largely due to a lack of regulation. The Senate should under no circumstances allow the House provision to be included in the final bill. The mortgage brokers may be trying to do their lobbying under the radar, but we are watching.