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Older borrowers rely upon brokers more heavily than lenders to help them find the best mortgage, but the borrowers say they wind up less satisfied with the results than they are with lender-originated loans.

The borrowers say brokered loan terms are more often less favorable, costs are higher and that accurate and honest information is less often forthcoming from brokers.

"Experiences of Older Refinance Mortgage Loan Borrowers: Broker- and Lender-Originated Loans" was released earlier this year by AARP's Public Policy Institute (PPI).

The report reveals similar concerns raised by a more recent expert witness report examining 2,700 loans, "Consumer Confusion In The Mortgage Market," which found higher broker fees were charged to ethnic minorities and less educated borrowers, among others.

In the PPI report released earlier this year, 1,008 borrowers 65 and older who acquired prime or subprime refinance loans between January 1999 and December 2000 were surveyed by telephone.

Borrowers were asked if a lender or broker originated their loan among a host of other questions. Most refinanced loans in the survey, 49 percent, were lender-originated loans, while 39 percent were broker-originated. Broker-originated refinanced loans were more prevalent than lender-originated loans among the older refinance loan borrowers who were divorced, female, or non-white, PPI said.

The study also found:

  • Broker-originated refinance loans (33 percent) were nearly twice as likely as lender-originated loans (17 percent) to be subprime loans.
  • More than half of the borrowers (56 percent) with broker-originated loans reported that the brokers initiated contact with them. Less than one-fourth (24 percent) of the borrowers with lender-originated loans reported the lender initiated contact.
  • Seventy percent of the borrowers with broker-originated refinance loans reported that they relied "a lot" on their brokers to find the best mortgage for them, compared to only half (52 percent) of borrowers with lender-originated loans.
  • Borrowers with broker-originated loans (25 percent) were more likely to report that they paid points for a mortgage than borrowers with lender-originated loans (15 percent).
  • Borrowers with broker-originated loans (26 percent) were twice as likely as borrowers with lender-originated loans (12 percent) to report having a loan with a prepayment penalty.
  • Among borrowers with broker-originated loans, only 16 percent reported that they returned to the same broker to refinance, while 40 percent of borrowers with lender-originated loans returned to the same lender to refinance.
  • Nearly one third (32 percent) of borrowers with broker-originated refinance loans reported having refinanced two or more times in the past three years, compared to only 19 percent of borrowers with lender-originated loans.
  • Twenty-one percent of borrowers with broker-originated loans reported that they did not receive a loan that was best for them, compared to nine percent of borrowers with lender-originated loans.
  • Borrowers with broker-originated loans (23 percent) were nearly three times more likely than borrowers with lender-originated loans (8 percent) to report that they did not feel the rates and terms of their mortgage were fair.
  • Nineteen percent of borrowers with broker-originated loans reported that they did not feel they had received accurate and honest information about their loans, compared to only seven percent of borrowers with lender-originated loans.
  • Twenty percent of borrowers with broker-originated loans reported that they received loans worse than expected, compared to eight percent of borrowers with lender-originated loans.

    High loan costs, full and timely disclosure of all costs, and other issues raised in the survey are among those that in recent years have triggered complaints, class action and other civil suits against brokers and lenders.

    So-called "predatory lending" (inappropriately expensive loans with fees that aren't clearly disclosed in a timely matter for those least likely to be able to afford such loans), most often a subset of subprime loans, has prompted the U.S. Department of Housing and Urban Development (HUD) to propose reforms for the Real Estate Settlement Procedures Act (RESPA) with guaranteed mortgage cost packages.

    Many individual brokers aren't waiting for the Bush Administration's reform and already offer guaranteed cost packages.

    The National Association of Mortgage Brokers recently revealed a survey that says most brokers are poised to offer guaranteed packages and the association is prepared to help member brokers do so if HUD proceeds with the reform.

    "Mortgage brokers provide retail lending services, including counseling borrowers on loan products...some mortgage brokers indicate that they work with a number of funding sources and are in a position to shop for the best loans for borrowers," the PPI report says.

    "However, a concern has been raised that mortgage brokers may focus more on the short-term profitability incurred at the origination of the loan rather than on the long-term performance of the loan since they are intermediaries who do not hold loans through maturity," according to the PPI report.

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