A serious problem for borrowers in dealing with brokers is the difficulty in discovering how much the broker is charging. The fee paid out of the borrower's pocket is disclosed on the Good Faith Estimate, a required disclosure, but today this is the smallest part of broker income. The larger part is the fee received from the lender, which typically is not revealed until late in the transaction when the borrower is already committed, and then is often shown in an obscure way that many borrowers miss.

A major section of HUD's recent proposals for reforming the market was directed toward this problem. The proposals were shelved earlier this year because of intense opposition from NAMB and other industry groups. NAMB's current "remedy" for incomplete disclosure is no disclosure! But it has cleverly bundled its proposal to eliminate broker disclosure altogether with one that improves disclosure of lender fees.

NAMB would collapse the multiplicity of itemized lender fees into one total of "origination costs" that would be guaranteed (within some margin of error) by the broker or lender. Any fee that the borrower pays the broker would be included in the total but not separately identified. Fees paid by the lender to the broker would not be shown either.

The logic of this proposal is that so long as borrowers receive accurate information on total origination costs, the breakdown of these costs is irrelevant. What should matter to the borrower is the total price, period. The retail lenders with whom brokers compete don't reveal their markups, and there is no reason for brokers to either.

This would be a valid argument if most borrowers were willing and able to shop prices effectively. The reality is, however, that most borrowers depend entirely on a single loan provider, whether broker or lender, in the hope and expectation that they will be fairly treated. Sometimes they are, but often, much too often, they are not.

Because shopping is complicated and demanding, borrowers should be able to purchase the services of a specialist to shop for them. Upfront Mortgage Brokers are brokers who agree to work as the borrower's agent, negotiating a fee in advance for their services. This fee includes payment to the broker from the borrower, the lender or both. If the fee is $3,000, for example, and if the lender pays the broker $2,000, the borrower would pay $1,000. Currently, there are 80 UMBs listed on my Web site.

If the NAMB proposal were adopted, the UMB option would be eliminated. Since broker compensation would no longer be disclosed in closing documents, borrowers could no longer verify that the broker complied with the compensation agreement. Any broker could claim to be a UMB, and could offer services at any price, without fear of being exposed.

In my view, the proposal should be amended to recognize that borrowers can follow two legitimate paths toward obtaining a mortgage. In one path, they shop for the best deal, whether the loan provider is a lender or broker doesn't matter, and the components of the origination costs do not matter. NAMB's proposal to collapse all origination costs into one total would help such shoppers significantly.

But borrowers who don't want to shop, preferring to retain an expert mortgage broker as their agent to shop for them, should have the option of selecting that path. The disclosure form should indicate the choices clearly, and if the borrower elects the agency path, the form should break out the total compensation to be received by the broker.

The two-paths toward obtaining a mortgage should also be recognized by those proposing mandatory counseling of first-time home buyers, or other mortgage borrowers. Counseling someone on how to select a broker as his/her agent is very different from, and much simpler than, counseling that person on how to shop for a mortgage.