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What is a Mortgage Broker?
Why choose a mortgage broker?
Have more Americans been able to buy homes because of mortgage
brokers?
Are mortgage brokers lenders or bankers?
Does the mortgage broker really care about the quality of the
loan itself?
Should brokers be regulated?
What role does the broker play versus the wholesale lender?
Do brokers work for the wholesale lender or the consumer?
Isn't the broker supposed to get the best deal for the consumer?
Don't brokers "steer" consumers to the
wholesale lender who pays the highest fees to the broker?
Why do brokers collect fees from both the
consumer and the lender? Isn't this a conflict of interest or a
duplication of charges prohibited by RESPA?
Brokers also provide separate and distinct
services and facilities to wholesale lenders.
1)
What is a
Mortgage Broker?
A mortgage broker is an independent real estate financing
professional who specializes in the origination of residential
and/or commercial mortgages. Mortgage brokers normally pass on
the actual funding and servicing of loans to capital sources who
act as loan "wholesalers." There are approximately 20,000
mortgage brokerage operations across the nation that originate
over half of all residential loans in the US.
A mortgage broker is also an independent contractor working, on
average, with 40 wholesale lenders at any one time. By combining
professional expertise with direct access to hundreds of loan
products, a broker provides consumers the most efficient and
cost-effective method of offering suitable financing options
tailored to the consumer's specific financial goals.
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2)
Why choose a mortgage broker?
Over 50% of Americans do. Brokers provide consumers with:
*Choice
*Convenience
*Expertise
The consumer receives an expert mentor through the complex
mortgage lending process. The broker offers the consumer
extensive choices and access to affordable home loans while
balancing the consumer's financial interests and goals.
3)
Have more Americans been able to buy homes because of mortgage
brokers?
Yes! Mortgage brokers have pioneered the "subprime" credit
market, using innovative loan packages to allow low- to
moderate-income borrowers, with less than perfect credit
histories, to start enjoying the benefits of home-ownership.
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4) Are mortgage brokers lenders or bankers?
Neither. A broker is a real estate financing professional acting
as an independent contractor. The range of products and services
offered through brokers, and by brokers, is evolving rapidly.
There are circumstances when brokers may act as bankers, funding
their loans however, the majority perform origination services
up to the point of funding.
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5) Does the mortgage broker really care about the quality of
the loan itself?
Yes, absolutely. The safety and soundness of the mortgage
lending community is directly linked to the success and
integrity of its home loan originations. Furthermore, mortgage
brokers represent the single largest residential origination
source today, emphasizing that they play a significant role in
the mortgage loan process. These numbers highlight the fact that
consumers who exercise their choice, choose mortgage brokers;
most likely because brokers are dedicated to their customers:
consumers, wholesale lenders, and ultimately, American
tax-payers.
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6) Should brokers be regulated?
Brokers are regulated by several federal laws and regulations
and dozens of state laws and licensing boards. As of Jan 1,
2006, all lenders must be licensed by the state of Washington
and satisfy annual educational requirements.
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7) What role does the broker play versus the wholesale
lender?
The wholesale lender underwrites and funds the home loan, may
service the loan payments, and ensure the loans' compliance with
underwriting guidelines. The broker, on the other hand,
originates the loan. A detailed application process, financial
and credit worthiness investigation, and extensive disclosure
requirements must be completed in order for a wholesale lender
to evaluate a consumer's home loan request. The broker
simplifies this process for the borrower and wholesale lender,
by conducting this research, counseling consumers on their loan
package choices, and enabling them to select the right loan for
their home buying needs.
The mortgage loan process can be arduous, costly, and seemingly
impossible to the consumer. The broker works as the liaison
between the borrower and the lender to create a cost effective
and efficient loan process. Many low income borrowers with less
than perfect credit histories would not have been able to
purchase their dream home without the assistance and dedication
of a mortgage broker.
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8) Do brokers work for the wholesale lender or the consumer?
Neither. As an independent contractor, the broker allows
wholesaler lenders to cut origination costs by providing such
services as preparing the borrower's loan package, loan
application, funding process, and counseling the borrower.
Brokers help keep loan rates low due to their minimal overhead
and setup costs. Furthermore, the broker will seek the loan
which best suits the borrower's financial circumstances, needs,
and goals. From the consumer perspective, with rare exception,
the broker does not get paid unless and until the loan closes.
Thus, the broker has the ultimate incentive to provide the best
possible customer service to the consumer.
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9) Isn't the broker supposed to get the best deal for the
consumer?
Since mortgage brokers offer the products of many wholesale
lenders they often have the best selection. This question
presumes that anyone can know what is "the best deal". While
many would consider "the best deal" to mean "the lowest rate," a
loan program with a very low interest rate may not be the best
choice for a consumer with limited cash, if that rate comes with
high points and fees. A 15-year loan may save a borrower tens of
thousands of dollars in interest payments over a 30-year loan,
but the higher monthly payments may not be acceptable to the
consumer. So, "the best deal" for any consumer depends on his
financial circumstances, needs, and goals.
Today over half the nation's mortgages are originated by
mortgage brokers. This clearly indicates that consumers are
choosing the superior options, service, and expertise offered by
mortgage brokers. Brokers have forced retail lenders to compete
with other loan sources driving down costs nationwide.
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10) Don't brokers "steer" consumers to the
wholesale lender who pays the highest fees to the broker?
While isolated instances of adverse steering can occur, the
mortgage brokerage industry has predominantly armed consumers
with a free-market economy weapon: open and vigorous
competition. Any consumer exercising his or her basic right to
shop and compare, will ultimately find the loan options that are
in his best interests. The combination of government-mandated
disclosures and vigorous competition has presented today's
consumer with unprecedented levels of choice. While price is an
important consideration in advocating a specific wholesale
lender, brokers also make their professional recommendations
based on a number of other factors which include the lender's:
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11) Why do brokers collect fees from both the
consumer and the lender? Isn't this a conflict of interest or a
duplication of charges prohibited by RESPA?
RESPA allows fees to be charged between settlement service
providers, as long as those fees are reasonable for services,
goods, or facilities actually provided. Mortgage brokers provide
the same services to consumers as do retail loan offices that
typically charge the consumer an origination fee. These services
include: taking the application, obtaining the credit report and
appraisal, counseling the consumer on the loan process, and
collecting the necessary documents.
12) Brokers also provide separate and distinct
services and facilities to wholesale lenders.
These include marketing the lender's products and assembling and
delivering the completed loan package. In addition, lenders may
pay brokers a premium, ("yield spread premium" or "service
release premium"), which may include compensation for the
services and facilities, but also represents payment for the
intrinsic market value of the closed loan. All of these are
legally compensable. It is important to remember that,
regardless of which party compensates the broker (lender or
consumer), in almost all cases the broker receives nothing until
the loan closes.
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