Mortgage Brokers
A mortgage broker acts as a go-between for lenders and borrowers. While a traditional loan officer works directly for a lender, the mortgage broker is an independent agent. Working with a mortgage broker offers a number of advantages for borrowers. Provided here is a brief guide to understanding how a mortgage broker differs from other lending options.
Prevalence of Mortgage Brokers
Experts estimate that as many as 68% of all mortgages in the United States
are serviced by mortgage brokers. The explosion of internet usage combined
with low overhead costs has made it easy for mortgage brokers to compete
for customers. The low overhead allows the mortgage broker to remain
flexible and lower prices when needed.
Advantage to Consumers
A mortgage broker typically works with multiple lenders. This allows
consumers with questionable credit histories or otherwise unusual profiles
one-stop shopping for loans that will meet their unique needs. This
flexibility also allows the mortgage broker to shop around for the best
deal for any customer.
Although few mortgage brokers offer so-called "portfolio lending," in which all aspects of the transaction are handled in-house, many brokers become the chief point of contact for the consumer. Many consumers like the convenience of working with a single broker from the moment of pre-application through closing and later repayment.
Regulation of Mortgage Brokers
State laws vary widely, but most states require that the mortgage broker
hold a license and become professionally registered with the state. The
broker is generally held personally liable for fraud throughout the life of
the loan. There are numerous state and federal consumer protection laws
that govern mortgage brokers, including those that deal with fee
disclosure. However, it is highly recommended that potential customers
carefully read any agreement before signing.
Predatory Lending
As with any other financial career, some mortgage brokers have been
accused of predatory lending practices. Some of these practices are
technically legal, while others are blatantly illegal. Although most
mortgage brokers are honest and ethical, the high sums of money involved in
a mortgage contract make it extremely important that a potential borrower
seek legal and financial advice before signing any agreement.
The Bottom Line
A mortgage broker acts as a go-between for borrowers and lenders.
Consumers have the advantage of one-stop shopping as well as broker
flexibility. However, some brokers build in additional fees and other costs
that may artificially inflate the total cost of the loan. Shopping around
and seeking legal and financial advice prior to signing a contract can help
ensure that the best possible terms are obtained.
