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Fiduciary liability of mortgage broker

This will shield some light to help you understand the impact surrounding the brokers.

One who undertakes to find and arrange financing or similar products for another becomes the latter's agent for that purpose, and owes statutory, contractual and fiduciary duties to act in the interest of the principal and make full disclosure of all material facts. "A person who undertakes to manage some affair for another, on the authority and for the account of the latter, is an agent." In re Estate of Morys, 17 Ill.App.3d 6, 9, 307 N.E.2d 669 (1st Dist. 1973).
A mortgage loan broker is an agent procured by the borrower to obtain a loan. Wyatt v Union Mtge. Co., 24 Cal.3d 773, 782, 157 Cal.Rptr. 392, 397, 598 P.2d 45 (1979) (a mortgage broker owes a fiduciary duty of the "highest good faith toward his principal," the prospective borrower, and "is 'charged with the duty of fullest disclosure of all material facts concerning the transaction that might affect the principal's decision'"). Accord: Allabastro v. Cummins, 90 Ill.App.3d 394, 413 N.E.2d 86, 82 (1st Dist. 1980); In re Dukes, 24 B.R. 404, 411-12 (Bankr. E.D.Mich. 1982) ("the fiduciary, Salem Mortgage Company, failed to provide the borrower-principal with any sort of estimate as to the ultimate charges until a matter of minutes before the borrower was to enter into the loan agreement"); Community Fed. Savings v. Reynolds, 1989 U.S. Dist. LEXIS 10115 (N.D.Ill. August 18, 1989); First City Mtge. Co. v. Gillis, 694 S.W.2d 144, 147 (Tex.Civ.App. 1985) (requirement of fiduciary duty forbids conduct on the part of the broker which is fraudulent or adverse to his principal's interest and also imposes duty of full disclosure of facts material to his principal); In re Russell, 72 B.R. 855 (Bankr. E.D.Pa 1987); Langer v. Haber Mortgages, Ltd., New York Law Journal, August 2, 1995, p. 21 (N.Y. Sup.Ct.).
Many predatory practices of mortgage brokers, including particularly the receipt of "yield spread premiums," are arguably violations of fiduciary duty. Other promising candidates include repetitive refinancings of little or no ,benefit to the borrower. Note that if the mortgage lender is on notice of the breach, or induces it through the payment of a yield spread premium, the taint may extend to the lender.