Comments on Specific Questions

As demonstrated by the description of the lending process set forth above, the framing of certain questions posed by the Committee reflect certain misconceptions about the lender-broker relationship.

• The lender may build a maximum broker overage tied to the credit score.

It is generally true that lenders may impose "caps" or maximum limits on the compensation that brokers can collect on any given transaction. These "caps" are generally imposed in order to assure that loans originated by mortgage brokers are fully compliant with applicable

RESPA and Fair Lending requirements. It is important to note, however, that these "caps" are generally not structured on the basis of maximum limits on the points charged over the 'par' rate. Rather, lenders generally set maximums based on fees that they will pay to the broker for origination services performed. The broker, on the other hand, determines what dollar amount it must collect on any given transaction (limited, of course, by the "cap" that may be specified by the lender), and then builds this fee into the yield spread pricing that is ultimately offered to, and negotiated with, the consumer.

Although the credit score is an important tool in the underwriting of the loan, many lenders do not use credit score to set the maximum broker's compensation. Nevertheless, mortgage brokers may access the applicant's credit score directly prior to submission to a lender in order to assess the applicant's creditworthiness and the lenders and products that may be best for the applicant. Mortgage brokers may also price differently based on credit score as a proxy for how difficult the loan approval process likely will be. As per federal law requirements, the broker's compensation is calculated on the basis of services performed or goods provided by the mortgage broker so the mortgage broker can charge more for loans that will require more work on the mortgage broker's part. Other than by perhaps setting outside numerical caps, and requiring adherence to applicable state and federal laws, lenders are not involved in the setting of broker compensation on individual loans.

It is not possible for a lender to stop mortgage broker price discrimination without fixing loan price which it cannot do. Furthermore, a lender is unlikely to have all loans originated by a broker and thus does not know the broker price on all of the broker's loans in order to perform a fair lending analysis. Even if the lender had the data and could engage in such an expensive and onerous review, the only recourse would be to stop doing business with the broker thus reducing the access of credit to borrowers in that marketplace.

• The lender may provide brokers with access to the lender's scoring programs.

This statement is generally inaccurate, and to the extent such access occurs, it is of negligible impact in the market. As set forth above, lenders use scoring programs that are developed by large industry players such as Fannie Mae or Freddie Mac, as well as programs developed in-house, on the basis of the lender's own lending experience. In the latter case, the programs are proprietary and are therefore not shared with third party originators. Even in cases of lenders that employ programs used by large industry participants, such programs may be "tweaked" and altered to reflect the lender's experience, regional variations and/or risk preferences of the particular lender.

• The broker may obtain a credit report or credit score and use it to underwrite and price a proposed deal prior to submitting it to a lender.

The "pulling" of credit scores or credit reports by mortgage brokers prior to the submission of the loan package to the lender is a longstanding and non-controversial practice in the mortgage industry. In fact, mortgage brokers must be able to ascertain an applicant's credit background in order to perform the critically important duties of properly advising and counseling borrowers. The fact that this practice is generally accepted is demonstrated by

HUD pronouncements under existing RESPA rules and regulations. In a statement of policy dated issued in 1999 (64 FR 10080), HUD identified various services that are normally performed by brokers in the origination of a loan. Among those items, HUD describes various counseling-type activities that specifically include "prequalifying prospective borrowers" and "assisting the borrower in understanding and clearing credit problems." Under each of these functions, brokers must have access to credit reports and credit scores in order to properly guide and counsel prospective borrowers.

Although brokers may do a preliminary underwriting review in order to assist the consumer in choosing a lender and product, typically, the broker does not perform the final underwriting nor make the credit decision. Many broker agreements with lenders do not have a repurchase obligation because the broker does not have the capital or access to capital required to fund a loan. As a result, only correspondent lenders would have the ability to make a credit decision since they would also have a repurchase obligation if the loan did not meet the lender's underwriting requirements. In the rare instance that a broker is engaged in underwriting, it performs this function under some type of outsourcing agreement, following the lender's strict guidelines, and acting as the lender's agent. In this capacity, and pursuant to federal law, it is clear that the lender would remain liable for all fair lending consequences that flow from the actions and decisions of its "broker-agent."

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