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Federal Appeals Court Rules In Favor Of Homeowner in Subprime Case

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  • Charlie Bravo | | 15 Aug 2012, 07:57 PM Agree 0
    <blockquote>Countrywide says it did nothing wrong but the appeals court disagreed. They said that the broker had a fiduciary responsibility to the homeowners (the Lees) and had an obligation to disclose what it was receiving from Countrywide.</blockquote>

    Well this plaintiff may prevail, or better yet their tort lawyer, but in the end all American consumers will suffer under this corrupt system. This will effectively make all brokered transaction fall under a "fiduciary responsibility". This will kill brokers and make the big banks without competition. Good Night America.
  • Stan | | 17 Aug 2012, 09:26 AM Agree 0
    Brokers are part of the corrupt system, particularly when they are paid by the lenders to sell more expensive and otherwise harmful mortgages to unuspecting clients. Brokers should have a fiduciary duty to their customers, and if they are going to hide the truth from them, they are corrupt. Not many brokers told the truth to their customers and they got rich off their customers because of that. America will do quite nicely if brokers, and banks, have to be honest and fair.
  • Charlie Bravo | | 17 Aug 2012, 10:26 AM Agree 0
    @Stan what you fail to understand is that without brokers, banks will have carte blanche to charge higher margins on the money they mortgage which will erase any pricing advantage the consumer would have had with the eradication of the mortgage broker. The only difference is that now there will be no transparency or competition from brokers to keep interest rate margins low. Interest rates are a commodity, no different from tangible products such as gasoline, soy beans, or gold. People trade interest rates as well as physical commodities everyday and if you think by reducing competition for these commodities and centralizing interest rated pricing power in the hands of a few large institutions that you're going to somehow help the consumer, you are absolutely oblivious to markets and how they work.
    In fact, the real culprit in this debacle was an ever inflated money supply which flooded the market with "cheap" money to fuel the bubble. Broker's only filled orders from lenders.
  • William Matz | | 18 Aug 2012, 10:39 AM Agree 0
    Confirming Charlie, I just posted elsewhere a comparison last week; as a broker my pricing beat Chase (or B of A) by 2-3 points. So lenders are making much fatter profits AND paying lower splits to all the desperate folks (80%!) who could not pass the NMLS test to qualify as brokers.

    This case breaks no new ground. In Calif and many other states, brokers have long had a fiduciary duty to borrowers. There is no such duty for lenders. So borrowers ar far better off using a broker, against whom there is legal recourse. E.g., last fall, I tried a case (as an atty) against a broker who put a disabled tradesman into a $400k World neg am. When I cross-examined him, he could not even explain how the mortgage worked; I had to show him. Yet he claimed to have done "over 100" such mortgages.

    The ultimate responsibility should still rest with the lenders. As I noted in my October 2010 NR feature article, lenders created and underwrote the complex mortgages, lenders offered the predatory pricing (e.g. violating HUD YSP rules), and lenders trained the brokers to push inappropriate products because they were more profitable on the secondary market. So to the extent that brokers breached fiduciary duties, lenders should be held responsible for facilitating it.
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