How do mortgage brokers rip borrowers off?
Federal rules target the practices that most often cost borrowers. Steering a consumer to a loan because the originator earns greater compensation is prohibited unless the loan is in the consumer's interest, and compensation based on the terms of a mortgage is banned. If a borrower pays an originator directly, no lender or other party may also pay that originator for the same transaction. Verify any broker at NMLS Consumer Access and ask whether a broker is involved in the transaction and how they are paid.
Common problems involve excessive or undisclosed origination fees, since brokers commonly earn a commission of 1% to 2% of the loan amount, paid by the borrower, the lender, or both. New York requires brokers to be registered with the Department of Financial Services and to disclose their fees upfront, and a broker's surety bond exists to reimburse consumers who are improperly charged fees. You can verify any broker's standing for free on NMLS Consumer Access before working with them.
Sources: N.Y. Banking Law § 590: Definitions; registration required; N.Y. Banking Law § 591-a: Application to register as a mortgage broker; fees.