Most mortgage brokers sell themselves with a simple pitch: they shop around and get borrowers the best rate on the best loan. Given how many home buyers have ended up in foreclosure, it has gotten a lot harder to believe that brokers are solely looking out for buyers' best interests. But back in 2006, when Juan and Josefina Rodriguez got a $620,000 mortgage through Schaefer Financial Services with a 10% interest rate, they believed they got a good deal. Turns out they might not have. Boston lawyer Gary Klein, who is representing the Rodriguezes and others in a class action against Wells Fargo, which ultimately funded the couple's loan, says the Rodriguezes paid much more than they should have because they were given a subprime loan when, based on their credit score, they qualified for a prime mortgage with a much lower rate.
Bob Siminou, the broker who arranged the loan at Schaefer Financial, which is not a defendant in the suit, says he contacted four banks about the Rodriguezes' loan. Wells Fargo offered the couple the best deal. "We don't gouge our clients," says Siminou. A Wells Fargo spokesperson says the Rodriguezes got a higher interest rate because they were buying the house as an investment property, not a place to live, and wanted a small down payment. "We expect the brokers who work with us to adhere to our long-standing responsible lending practices, for which we have controls that we continually strengthen," says the spokesperson. "In this matter, as in all others, we expect the facts to prevail." Nonetheless, Klein says that what happened to the Rodriguezes and others is a result of a much bigger issue in the mortgage market. "So much of the problems of the past decade came out of people not understanding their credit score," says Klein, an expert in consumer law and unfair business practices. "The credit-scoring process needs to be more transparent."
Credit-scoring — add it to the list. Congress is moving closer to passing the most significant reform of the financial-services business since the 1930s. Early last week, lawmakers cut a deal on how to pay for the new government oversight and regulatory changes. On June 30, the House approved the bill 237 to 192. The bill offers a number of measures that many contend will help consumers. It ends the most popular way in which banks incentivized mortgage brokers to get borrowers to pay higher rates. It gives consumers access to their credit scores. And it lowers the interchange fees that retailers and, by extension, consumers have to pay on debit-card purchases. Perhaps the biggest boon in the bill for borrowers could be the creation of the Consumer Financial Protection Bureau (CFPB) — a new federal agency tasked with policing the loans and other related products and services that banks and others sell to individuals. Bank lobbyists and some lawmakers have said that the CFPB will increase the cost of lending and make it harder for many to get loans. Consumer advocates, though, say a federal agency specifically looking out for the welfare of borrowers is long overdue. Here's a look at some of the areas and practices that consumer advocates think the CFPB should address first.