With the launch of the 2010 Good Faith Estimate we read articles about the fall of the mortgage broker and that brokers will be unfairly disadvantaged when reporting rates and terms. I am here to call all that poppycock. The simple truth is a borrower can clearly determine how much is being charged or made by the broker and when dealing with a bank or direct lender a borrower does not see all the income being made on their loan. The “TIL” or Truth In Lending Statement still reports the same APR for a broker and lender assuming the same exact terms even if the broker is receiving lender compensation for the loan. Lender compensation or yield spread premium is how brokers offer no points loans and is no different than a bank selling your loan to Freddie Mac except a bank does not disclose this income they receive.
But let’s not forget the role of a mortgage broker. The broker should be presenting him or herself as an authority in the market place, and have multiple investors whereby to deliver their loans. The assumption being that the broker has delivered the best loan product for the client at the most competitive rate and terms to the best individual investor at the time. And every broker should be able to beat a big bank or big bank lender – if they want to. But therein lies the real issue - broker abuse.
Being a mortgage broker became the go to job in the 90’s 00’s for many getting into the industry - and licensing couldn’t have been easier. It just became too easy for mortgage brokers to hijack their clients and charge excessive fees all the while really only being regulated by the wholesale lenders themselves. Of course, those firms had insatiable desires for more paper, so that wasn’t really good oversight, and the states and federal government were apparently asleep for 10 years.
Having originated both as a broker and lender after the new GFE was put into place; I feel I am as capable as anyone to speak to the differences between dealing with a direct lender, bank, or mortgage broker. There aren’t really any differences.
Direct lenders will tell you mortgage brokers cannot be trusted to fund a loan, and mortgage brokers will tell you the banks take 90 days to close. The reality, they are both accurate. There are brokers who can just simply not operate in today’s lending environment and can therefore really train wreck a transaction. But equally frightening is that banks do often take months to close the most simple of refinance or purchase transactions. And often time tell clients late into the process they are not approved or the transaction cannot be completed. Many times due to their own lack of experience mortgage professionals.
Today more than ever it is important to know who you are working with – and be familiar with the actual experience level. Referrals are always great way to determine who to work with. This is not a part-time job. Mortgage professionals need to be licensed and educated in all aspects of residential lending in today’s market. Mortgage brokers generally need even more licensing and education than their bank peers. So your local mortgage broker may be the most knowledgeable mortgage professional available and the cheapest.
So before you go knocking the mortgage broker make sure you are comparing apples to apples and oranges to oranges, and most important, work with someone you trust.
With over twenty years experience in mortgage lending, a Certified Mortgage Banker Designate (CMB) from the Mortgage Bankers Association of America, and billions in funded loan experience, I can assist you and/or your clients with the most important financial decisions related to your residential and commercial real estate. Please call or email me today
Michael A. Foote, CMB
Certified Mortgage Banker
949.584.4600