In the wake of the subprime lending crisis, a state mortgage-broker trade group is taking steps to shore up the profession's image and separate itself from unethical brokers who contribute to borrowers' mortgage woes.
The Maryland Association of Mortgage Brokers, which represents about 800 of the state's 10,000 licensed brokers and loan originators, said yesterday that it has adopted a code of ethics and professional standards that members must follow to retain their membership.
"We've been very concerned for a number of years that within the large universe of mortgage brokers, there are a number of bad apples," said Thomas Shaner, the association's executive director.
Rising defaults on subprime mortgages, given to borrowers with weak credit who are then charged higher interest rates, have forced lenders to tighten standards and put a stop to the more exotic loans. Some lenders have had to slash jobs or filed for bankruptcy.
The association says some of the turmoil has stemmed from brokers or loan originators acting illegally or unethically.
"Some were putting people into high interest subprime loans when a person could have qualified for a traditional loan, and they did it purely to get a higher fee," Shaner said.
Many borrowers have struggled to make higher payments on adjustable loans once the interest rates reset.
Additionally, some originators were putting pressure on appraisers to boost a home's value, leading to loans being approved for more than the value of the house.
The organization will continue to refer consumer complaints to the Division of Financial Regulation in the state Department of Labor, Licensing and Regulation, said Charles DiPino, president of the mortgage brokers association.
But the newly adopted code will give the association a legal means of suspending or revoking memberships, which it had no way to do in the past, even if a broker had been found by state regulators to have committed fraud, Shaner said.
The code requires members to conduct business honestly, to provide accurate information in advertisements, to follow applicable laws and regulations and to offer rates and fees that are not discriminatory.
Brokers must explain financing options to consumers, provide them with written documents outlining loan terms and rates, and explain costs associated with the loan transaction and disbursement of fees collected.
The organization has been working on its ethics code for about a year, tailoring a National Association of Mortgage Brokers code for the state.
"There is enough bad publicity out there about what's happened in the mortgage arena, and the word 'broker' comes up," Shaner said. "We're trying to get ahead of that and say, there are a few bad ones, but let's not penalize the good ones."
The association expects to begin enforcing the new code Jan. 1.