MELTDOWN PUSHES More Fiduciary Duties ON BROKERS

By Negroni, Andrea Lee; Klimkiewicz, Melissa et al. | Mortgage Banking, October 2010 | Go to article overview
Save to active project

MELTDOWN PUSHES More Fiduciary Duties ON BROKERS


Negroni, Andrea Lee, Klimkiewicz, Melissa, Pham, Caroline D., Mortgage Banking


Whether mortgage brokers have a fiduciary duty to borrowers was already a heated topic before the mortgage crisis hit. In the wake of the meltdown, many new laws and court cases have made the answer to that question even more complex.

Attempts to pinpoint the causes of the housing crisis and prevent a recurrence have focused on mortgage brokers and home loan origination practices. Legislators have taken steps to impose fiduciary duties on residential mortgage brokers, and courts sympathetic to distressed borrowers have recently decided, in a number of cases, that mortgage brokers owe fiduciary duties to borrowers. An escalating legal trend toward recognition of the fiduciary duty of residential mortgage loan brokers is apparent. While there is little uniformity or predictability in this area, a review of the law reveals that mortgage brokers can no longer persuasively claim to be mere intermediaries in the home loan origination process. The question of whether mortgage brokers have fiduciary obligations to prospective borrowers was reviewed in an October 2007 article in this magazine written by Andrea Lee Negroni and Joya K. Raha, titled "Mortgage Brokers - What Fiduciary Duties Exist?" The handful of cases and state statutes discussed in that article predicted a trend favoring such an obligation. Requests for updates on the law of mortgage broker fiduciary duty have been so frequent, and changes in the law so rapid, that Mortgage Banking and that article's authors felt a sequel was needed. This article identifies legal developments since 2007, which reinforce the authors' view that in the context of loan origination, mortgage broker fiduciary duty may eventually be the rule rather than the exception. The discussion of the theories and principles of fiduciary duty and the fiduciary relationship between principals and agents is derived from the 2007 article.

Theories and principles of fiduciary duty of mortgage brokers

The law of fiduciary duty can be divided into the following general categoriesa: i) express fiduciary duty imposed by statute; 2) fiduciary duty based on an agency relationship; and 3) fiduciary duty based on the special relationship of the parties (e.g., mortgage broker and would-be borrower). Within these general categories, there is some overlap. For example, some statutes impose fiduciary duty on mortgage brokers when an agency relationship exists between them and their borrower clients.

Fiduciary duty is the highest standard of care under the law. It traditionally includes the duty of loyalty and the duty of care.

The duty of loyalty is the obligation undertaken by the fiduciary to exercise his power in a manner that he believes in good faith will best advance the interests or purposes of his principal, and conversely, not to exercise his power for personal benefit. The duty of care requires the fiduciary to act in good faith, as one believes a reasonable person would act, in becoming informed and exercising the power of a fiduciary.

Other fiduciary duties that may fall on mortgage brokers include ihe duty to disclose all loan information to the borrower (e.g., loan fees, interest rates, prepayment penalties and yield-spread premiums [YSPs]), and the duty to act in good faith and to deal fairly (e.g., avoiding secret fees or undisclosed fee-splitting arrangements).

Fiduciary duty may be enhanced when a mortgage broker has special skills or experience. A mortgage broker with extensive knowledge and experience will likely be held to a higher standard of duty and care than a novice broker. The broker's duty will also be elevated to a higher standard if a consumer has limited knowledge of the complexities of the mortgage transaction, if the consumer relies exclusively on the broker's knowledge and expertise, or if the consumer is elderly or otherwise vulnerable.

Federal legislative reform

Recent federal legislation has helped to spur legal reform of mortgage brokerage at the state level.

The rest of this article is only available to active members of Questia

Sign up now for a free, 1-day trial and receive full access to:

  • Questia's entire collection
  • Automatic bibliography creation
  • More helpful research tools like notes, citations, and highlights
  • Ad-free environment

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

MELTDOWN PUSHES More Fiduciary Duties ON BROKERS
Settings

Settings

Typeface
Text size Smaller Larger
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

While we understand printed pages are helpful to our users, this limitation is necessary to help protect our publishers' copyrighted material and prevent its unlawful distribution. We are sorry for any inconvenience.
Full screen

matching results for page

Cited passage

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited passage

Welcome to the new Questia Reader

The Questia Reader has been updated to provide you with an even better online reading experience.  It is now 100% Responsive, which means you can read our books and articles on any sized device you wish.  All of your favorite tools like notes, highlights, and citations are still here, but the way you select text has been updated to be easier to use, especially on touchscreen devices.  Here's how:

1. Click or tap the first word you want to select.
2. Click or tap the last word you want to select.

OK, got it!

Thanks for trying Questia!

Please continue trying out our research tools, but please note, full functionality is available only to our active members.

Your work will be lost once you leave this Web page.

For full access in an ad-free environment, sign up now for a FREE, 1-day trial.

Already a member? Log in now.