Washington Mutual Announces New Standards for Brokers

Oct. 1 (Bloomberg) -- Washington Mutual Inc., the largest U.S. savings and loan, is requiring that mortgage brokers show they disclosed lending terms to borrowers as a record number of Americans face losing their homes to foreclosure.

Brokers who do business with Washington Mutual must provide evidence that they revealed their compensation and explained terms of the loan they recommended including amounts, prepayment penalties, and whether interest rates or payments may change, the Seattle-based lender said in a statement today. Washington Mutual also said it would try to call every borrower represented by a broker to review the terms of a loan before closing.

Mortgage brokers have been criticized in Congress and by consumer advocates who say insufficient disclosure, deceptive lending practices and lax regulation helped raise foreclosures on U.S. homes to a record high in August. Rising interest rates squeezed homebuyers with poor credit histories prompting the worst housing slump in 16 years.

``This is a step in the right direction and it's very important this is done to avert future problems,'' said Allen Fishbein, director of housing and credit policy at the Consumer Federation of America, a Washington-based advocacy group. ``Lenders in general need to play more of an oversight role if they use brokers.''

Washington Mutual rose 38 cents, or 1 percent, to $35.69 at 4:01 p.m. in New York Stock Exchange composite trading. The stock has dropped 21 percent this year.

Proposed Legislation

About 59 percent of all mortgages last year were arranged through brokers, according to Columbia, Maryland-based Wholesale Access Mortgage Research & Consulting Inc.

``These efforts are about further simplifying the process of obtaining a home loan for our customers and helping to ensure that our customers fully understand the various choices available to them,'' Alan Gulick, a Washington Mutual spokesman, said in an e-mailed statement. The changes go into effect Oct. 9, he said.

U.S. House Financial Services Committee Chairman Barney Frank said that he's writing legislation to halt predatory mortgage lending and increase consumer protection.

Frank, a Massachusetts Democrat, circulated an outline of a plan last week that would require mortgage brokers to be licensed and registered under state or federal law. He may also propose eliminating incentive pay to brokers based on a customers' choice of mortgage terms.

Brokers serve as middlemen while lenders are responsible for reviewing applications as well as making approval and funding decisions that lead to bad mortgages, George Hanzimanolis, president of the National Association of Mortgage Brokers, said in an interview last month.

`Already Required'

``Brokers are already required to do this,'' Hanzimanolis said today in commenting on disclosures to borrowers. ``The government requires us to do it. Maybe they are just trying to reiterate what the rules are.''

U.S. Representative Spencer Bachus of Alabama, the top Republican on the House Financial Services Committee, introduced legislation July 12 to create a national registration system and a new licensing standard for brokers. Senate Banking Committee Chairman Christopher Dodd, a Connecticut Democrat seeking his party's presidential nomination, unveiled legislation Sept. 5 that would bar brokers from steering borrowers into costly loans.

``Any lender that is buying loans from anyone has quality control, has full underwriting capabilities,'' Hanzimanolis said today. ``If there are loans that are bad, those are things they should be identifying up front.''