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Pros and Cons of Using a Mortgage Broker
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GLOSSARY
Class A Borrower
A "Class A" borrower is an insider term used by loan officers. It denotes a blemish-free credit report of the type acceptable to most traditional banks. Class A borrowers get the most favorable rates.
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Honest Lending Agreement
The U.S. Department of Housing and Urban Development has called for an honest lending agreement in recognition of the growing interest in the services of mortgage brokers. The renewed interest is brought about by:
1) The new tax law that allows homeowners to sell their residences once every two years and pocket up to $500,000 in gains, tax free;
2) The recession of the early 1990s that left many jobless and with less than Class A credit reports. More than 52 percent of those who own their own business are women with hard to verify incomes. Such buyers are heading for the mortgage brokers.
Check with your state banking department regarding laws that regulate the field.
1) The new tax law that allows homeowners to sell their residences once every two years and pocket up to $500,000 in gains, tax free;
2) The recession of the early 1990s that left many jobless and with less than Class A credit reports. More than 52 percent of those who own their own business are women with hard to verify incomes. Such buyers are heading for the mortgage brokers.
Check with your state banking department regarding laws that regulate the field.
o you really need a mortgage broker? It's a question more and more people are asking. The Internet now allows you to search for the best rates on your own, and a truly savvy home shopper can cut a good deal.
No studies show that you come out better by using a mortgage broker. But that doesn't mean you won't, either. A good mortgage broker lays out the various rates, points, fees, appraisal costs, attorney's fees and repayment terms. A broker can prevent you from making a mistake.
Lenders are not necessarily interested in offering you the lowest rate. Lenders want to offer you a rate you can afford. But you could end up getting charged an extra point or half-point more than you needed to pay.
Ask a broker how he or she finds lenders. Many brokers just browse the Net for useful sites, make the same calls you can, and then charge you a fee. But others have hard-to-find contacts, know what lenders require, and match terms to your demands.
Brokers act as facilitators
Mortgage brokers are financial middlemen, working to bring lenders and borrowers together. Until 1960, when the first trade association gathered in Florida, it was mostly a freewheeling endeavor, with little self-policing or government regulation.
Today, mortgage brokers act as facilitators, streamlining paperwork, comparing rates and shopping for lenders willing to work with less than "Class A" borrowers.
To decide if you really need a mortgage broker, start by considering these issues.
You may need a mortgage broker if you:
1. Have credit problems.
If your credit record, current income or other essentials of credit worthiness are less than stellar, a mortgage broker can help you find a more flexible lender. You will pay a higher than market rate in return.
2. Want help in finding and comparing deals.
Even the best borrowers can benefit from a mortgage broker if they need help in choosing from among the various available mortgages.
3. Want help with the paperwork required to close the loan.
From closing costs to appraisals, borrowing to purchase or refinance real estate is a hassle that many people would like to avoid. Today, rapid approvals are the brokers' biggest selling tool. For example, the Homeowner's Finance Center boasts a 24-hour online turnaround, with all data entered online.
You don't need a mortgage broker if you:
1. Have good credit or a mortgage banker that deals with high-risk loans.
High-risk borrowers can be good business. Many bankers no longer reject you because of past bad acts. Using a banker directly, instead of a broker, can eliminate some additional fees. You'll find them through their nationwide advertising campaigns or visit the Mortgage Bankers Association Web site.
2. Can do the mortgage math.
Navigating calculations that compare the virtues of 15- vs. 30-year mortgages or the difference between flat rate and adjustable mortgages has become a do-it-yourself task for those familiar with the Web. You can start with Decision Center's own mortgage comparison calculator . You can also check out the latest mortgage rates via Decision Center's Bank Rate Monitor Web site.
3. Have the time and patience to shop for the best deal.
If you have the time to do it yourself, you can do it yourself. It's that simple. Finding the best deal on a mortgage involves searching the Web, such as for Decision Center's Bank Rate Monitor information, as well as calling up individual lenders. If you have good credit, the lender wants your business. You can tell the lender that another lender has offered you a specific deal and can they beat it.
Percentage fee is best
Brokers are your agents. You pay for their services and are entitled to their loyalty. But brokers should not request a fee from you unless and until the loan closes. The amount of the fee is usually a percentage of the loan itself. The lender is requested to "cut a check" at closing for the broker from the proceeds of the loan.
However, a broker may instead negotiate a spread-point fee. Typically, this is not in your best interest. The lender will give a 7 percent mortgage, but you pay 7.25 percent. The quarter-point is paid back by the lender to the broker from your monthly remittance. While legal, such arrangements should be disclosed. They often mean the broker and lender have a special relationship.
If you have a large credit problem, you may need to accept such a deal. If you don't have credit problems, however, walk away from this deal and possibly the broker as well. You want a broker that's more beholding to you than to the lender.
Make sure agreement is in writing
The National Association of Mortgage Brokers (NAMB) has drafted a suggested agreement that reveals the details of a broker's compensation. Be sure that the arrangement is in writing. If you apply through a Web site, you are entitled to a binding hard copy of the arrangement.
Many mortgage brokers collect an origination or processing fee from you. But that may be a small portion of their compensation. They may receive a point or fraction of a point of the value of a loan from the lender. That leads to favoritism toward a lender who gives a rich commission or provides repeat business.
It also means that brokers may want to make life easy for themselves by bringing a package of several mortgages to one lender, even if the mortgages don't give the best rates to all. For example, if you're a Class A risk, your loan may be one of many offered to facilitate loans to borrowers with credit problems. These are called "package transactions," or one-stop shopping from lenders with deep pockets. Many times the deals are good for everyone in the package. But sometimes the toughest case is the beneficiary of the rest.
Furthermore, a broker who takes a commission from a lender may persuade you to take the maximum mortgage, or even accept a higher rate than necessary. Be sure you know how the broker is compensated, and refuse the service if you see a potential for a conflict of interest.
The choice of using a mortgage broker is up to you, based on your lifestyle and personality. Like no other time in history, the information is there for a do-it-yourselfer to get the best mortgage deal possible. But the right mortgage broker can make one of the most stressful decision-making processes much less taxing. 
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