If you are in the process of refinancing your mortgage and are working with a broker, your mortgage broker could be robbing you blind without you even knowing it. Broker Banks are a special type of lender that is nearly indistinguishable from other mortgage brokers and are exempt from all disclosure laws protecting homeowners in the United States. Here’s how to protect yourself from broker bank fleecing when refinancing your home loan.

When the Real Estate Settlement Procedures (RESPA) legislation was making its way through Congress and the Senate, your friendly neighborhood bankers lobbied intensely to be excluded from the proposed legislation. Millions of dollars changed hands and when RESPA became a law, lo and behold banks were exempt from the newly founded disclosure laws that protect American homeowners from predatory lending practices.

The RESPA loophole for Banks is why you should never apply for a mortgage with your Bank, but what about mortgage brokers? Mortgage brokers are required to disclose under RESPA, but wanted the same loophole afforded to your bank; as a result, Broker-Banks were born. Broker-banks are nearly indistinguishable from any other mortgage broker except for one key factor. Broker-Banks are exempt from the disclosure laws provided by RESPA. This means if a mortgage broker charges you a $1,000 fee for their services, they are required by law to disclose this fee to you. A Broker-Bank can charge you the same $1,000 fee without you even knowing it.

Broker-Banks take advantage of this loophole by exploiting the interest rate you are sold with your mortgage. That’s right; you are sold an interest rate, not qualified by the lender. The Broker-Bank receives a bonus for selling you a loan with a higher interest rate. For every .25% extra you agree to pay on your mortgage interest rate, the Broker-Bank receives a bonus of as much as 1-1.5% of your loan balance. The Broker-Bank overcharges you, pockets a bonus from the lender, and no one is the wiser.