1. First off mortgage brokers are not bad people. They are just trying to earn a living and have found a way to make a lot of money with very little personal risk. Mortgage brokers get a bad rap sometimes because of a few people that have misled clients. This happens in all industries but is in our faces more recently.
2. A mortgage broker is somebody who is a middle man between banks, credit unions, and investors. They work with so many companies because some have more programs than others or are willing to take a risk on a certain borrower.
3. Mortgage brokers do not lend you money. All that they do is the shopping for you and charge you a premium to do it.
4. If you currently are working with a mortgage broker or have in the past look for a line on the Good Faith Estimate(GFE) where it says Origination Fee or Broker Premium. That $$ number represents what you are paying him to do the work. Guess what, it was not that much work because even though the mortgage broker has connections with 50 different banks they always go to the same 2 or 3 that consistently get the job done for them.
5. This origination fee is usually 1%-2% of the loan, i.e $100,000 x 1% = $1000 commission for them and so on. As you can see this is some good money for basically talking to you for 20 minutes and picking a loan. Most brokers probably close $1.5m-$2m in loans a month = $15k – $40k in commission. Pretty sickening huh.
6. Next time you look at your Good Faith Estimate ask them about the origination fee. They probably won’t know what to say or have some line saying “that’s how we were able to get you a lower interest rate.” In which you could have been given the same rate by the actually bank funding the loan. Interest rates are determined by what happens on the stock market. If you want a lower interest rate than ask your bank what it would cost to get one at that time. You might pay more but it will be less than what you would have paid with the mortgage broker.
7. Ask the mortgage broker about where it says the actual bank such as “Countrywide Home Loans” as being the lender. Ask them that if you would be receiving the same terms (cost, rate, points) etc, if you were to just call Countrywide up. Why would Countrywide charge you that? They wouldn’t. Call the actual lender.
8. Mortgage brokers have been known to use pre-payment penalties with their loans and if you refinance during a 2-3 year time period you would have to pay them a fee up to 6 months of interest. The only way out of this would be to call them and do another loan with them repaying all ofthe origination fees again. The U.S Government has been stepping in lately and is making it illegal to charge a pre-payment penalty. Good job government. Actually doing something right this time.
9. Mortgage brokers were popping up everywhere over the past 5 years and every body was becoming a mortgage broker. It was quick cash and almost none of the states actually had any testing or regulations. With the changes in the mortgage industry many people who were in process with mortgage brokers were never able to close because the broker went out of business or the lender they were going through had their guidelines change and could not fund the loan. This would make the client have to find another lender and go through the entire process again for another 30 days.
10. The housing mess will probably eliminate mortgage brokers because the banks are realizing that they are not going to pay premium for an investment when its actually a liablilty. They have no way to manage their brokers. Its smarter to hire somebody in house, pay them $40k a year to handle checking, savings accounts, loans, etc and give them $250 when a loan closes than to chase brokers around. If they feel like a broker was lying than all the broker has to do is close up shop and thank the bank for closing loans that should have never been closed.
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This article was written by someone who has never originated a home loan. They speak as if originating a home loan is done with an Easy Button: take an app, talk to the cust for 10 mins., then close & get paid big bucks. lol Ridiculous. The Broker represents the borrower like an attorney, presenting the case to the lender thoroughly to ensure approval. Unlike the bank, there is some flexabilty depending on how the broker presents the case to the lender. Furthermore, there are several factors that are out of the bank’s control and the broker’s control. The appraisl, re-pulling of the credit report, field review results, change in federal regulations, etc.. A good broker is worth every dime they’re paid and the work put into the file can be tremendous. The writer of this article should orignate and process a file with a borrower who’s credit score is 580 on a property in Georgia. lol They would then understand why the fees are so high. And finally, the loan originator rarely gets more then 50% of that fee. There are an office full of people (managers, processors, secretarys) who are getting a piece of that fee for doing the work to get the loan closed for the borrower.
@ T Steele
This article was written by somebody who worked at Quicken Loans for over 2 years. You described exactly how the process went for me as a mortgage banker there besides the big bucks thing.
It may not have been Georgia but I have originated home loans for people with 580 credit scores. The fees are high because the borrower has a low credit score.
If you read reason #1 you would understand that I am not bashing mortgage brokers at all.