Alabama has only one legal provision directly related to mortgage broker agreements, which is as follows:
“Licensee [i.e. a broker licensed under the Alabama Mortgage Brokers Licensing Act] shall:
(a) Prior to the collection of a mortgage broker fee from a borrower, disclose to the borrower in writing the nature of the mortgage broker’s relationship to the borrower and the method by which the mortgage broker will be compensated for services.” (Ala. Code §5-25-12[a])
Due to the wide variety of both relationships that a broker may have with a borrower and the methods of broker compensation, we have provided a very simple version of a mortgage broker agreement (Cx4068) in which our clients can enter their own text disclosing their relationships and compensation methods. Despite this flexibility, however, this does require a client to enter a fair amount of text, which can be time-consuming.
In order to simplify this process, as well as to provide a similar level of flexibility, Cx4068 will be modified so that it will always print generic language in each of the three sections in the agreement which should fit most client’s business practices. This text will, in summary, provide the following information:
1. In the “Nature of the Broker’s Relationship to the Borrower” section, text will print stating that the broker will assist the borrower in obtaining a loan commitment, will not act as an agent for the borrower, and cannot guarantee acceptance into any particular loan program. This section will also contain a delimited, selective list of services that the broker agrees to provide.
2. The “Method by which the Broker will be Compensated for Services” section will provide an explanation of the differences between borrower/seller- paid and lender-paid compensation, as well as the pros and cons of both. Depending on the type of compensation that will be paid in connection with the loan transaction, special text will print disclosing the compensation amount and who will be paying this compensation.
3. The “Other Agreements” section will have text explaining that the borrower may be obligated to pay other fees which are set forth in the Federal Good Faith Estimate, that the broker cannot collect any fees until a conditional commitment is obtained from a lender (pursuant to Ibid. §5-25-12[b]), and that while the broker will make a good faith effort to process the borrower’s application, such processing may be affected under certain circumstances unknown to the broker at the time the application is received (e.g. the appraised value of the property is different than what the borrower originally estimated).
In addition to these texts, clients will still be able to add their own disclosures, terms and conditions to these sections, thus preserving the document’s flexibility.
If you would like a copy of this document to review or have any questions or concerns about these changes, please contact your Account Manager or Client Support at 1.800.497.3584. If you find that the generic text will not fit your business practices, please let us know immediately.
These changes will take effect May 18, 2012.
May 11, 2012