There is a huge "strawman fallacy" in this piece that needs to be pointed out.
"If you and your neighbor have the same financial qualifications and apply for the same type of home loan, you would expect to get about the same interest rate. Not necessarily so"
The article then goes to point out "shows that for people with weaker credit, brokers consistently charge significantly more than direct lenders"
For this to be correct I guess they are pointing out that both neighbors would be getting a loan with higher fees, however that isn't the argument being proposed here.
I would like to point out that anyone purchasing a home should be certain they have a mortgage broker which is looking out for their best interest(yes I can recommend one)(an NO I'm not related to her).
READ what you are signing, and I can't express that ENOUGH !!!!
The Broker "Tax": Brokers Gouge Borrowers with Weaker Credit
If you and your neighbor have the same financial qualifications and apply for the same type of home loan, you would expect to get about the same interest rate. Not necessarily so
What Drives Overcharges?
Lenders play a key role by offering brokers kickbacks ("yield-spread premiums") for steering people into overpriced mortgages.
A lack of transparency and the complexity of the subprime loans make it hard for consumers to know if they are being overcharged.
Policymakers should (1) ban practices that give brokers an incentive to overcharge subprime borrowers, (2) ensure that lenders take responsibility for brokered loans made in their name, and (3) set standards requiring brokers to serve customers' interests.
During the first four years of a mortgage, a typical subprime borrower who gets a mortgage through a broker pays $5,222 more than if he or she had obtained the loan directly from a lender.
At a telenews conference held this afternoon, Ted Lieu, an Assembly Member from California, pointed out that the states need to play an active role in protecting families from abusive lending. "The subprime market in its current shape does not adequately serve consumers. But it can," he said. Lieu has introduced the "Subprime Lending Act" in his state, which among other protections, would help guard against broker abuses.
Pam Kennebrew, a housing counselor from the Philadelphia Unemployment Project, also participated in the telenews conference. Ms. Kennebrew highlighted the plight of one of her clients, a senior citizen who received a refinanced loan from a broker with fees that amounted to more than 10% of the loan amount. "Too many loans are setting up homeowners to fail," she said.
The research released today was based on an analysis of 1.7 million mortgages made between 2004 and 2006 to people representing the full credit spectrum. To find out more, please visit our website, where you can download the full report.