Posted by Jed Lewison on Fri Apr 11, 2008 at 11:58 AM Pacific

Reason #7,328: Regulating mortgage brokers is a good idea

Barbosa says she was pretty fair to her clients and got them the best deal she could in the marketplace. But she says there was plenty of incentive not to put the customer first: Lenders would offer her 1 percent or 2 percent of the price of the loan as a kickback if she persuaded her client to take a higher interest rate. That was legal and commonplace.

Then there were the negative-amortization or "pick-a-payment" loans. Those offered low payment options to begin with but often exploded on the homeowner. As interest rates reset, often at much higher levels, homeowners faced larger payments. That's because the minimum payment required at the introductory rate didn't even cover the interest on the loan, let alone the principal.

"The bottom line is that the lender offered an incentive of 3 percent to the broker if they put [a client] into that particular loan," Barbosa says.