Why Use A Mortgage Broker

Every now and then I get asked this question, and I ask myself “Isn’t it obvious?” Obvious only to the people that are in the business, I imagine.

The first misconception is that Mortgage Brokers only add fees to the loan that the borrower can get from the banks directly. This is an error. If a customer can walk in off the street and obtain a mortgage loan directly from a bank, then that same bank will have a “wholesale” department where a broker can send the same loan package. The wholesale price that the broker pays for the loan allows him (or her) to add a fee for services. Many times a good broker can deliver a loan at a better rate and fees then the customer could get by going directly to the bank.

The next misconception is that the bank will work harder to close your loan. This may be true to a point. The bank can only offer you the loan products that they have to sell. If they don’t have a certain loan option that you want, then they will “work harder” to “sell” you on the loan they have. If you want a certain program from a mortgage broker, the broker can almost always find a lender that offers that program. You get what you want and the broker gets paid.

What I consider the most significant reason to use a broker is: Mortgage brokers are licensed by the Department of Real Estate. They are required to have the same license that real estate brokers do; and that license requires them to have a fiduciary responsibility to their clients. What this means is brokers are required by law to put your interest before theirs. This doesn’t mean that they work for free, just that they are required to show you all the programs that you can qualify for and explain the upside & downside of each program. Bank loan officers work for the bank. Their obligations and loyalties are to their employer (they will not tell you a competitor has a better program). Their obligation is to sell the programs that the bank has.

The final misconception is that Mortgage Brokers do not disclose all the fees a borrower will need to pay on the Good Faith Estimate. Just like any other business, there are some people that will do anything in order to try and sell you something. However, with mortgage brokers you have a state agency (Department of Real Estate) to file a complaint. Recently the State of California moved against two major national banks operating in the state of California for illegally overcharging and under disclosing fees to consumers. One of the banks has refunded the fees in question and is appealing the decision. The other bank flat out won’t refund the money and claims that the State doesn’t have jurisdiction. Both Lenders acknowledge that they violated California law, but claim that the law does not apply to them.

Fixed interest rates for Conforming Loans (under $322,700) as of 02/20/03 are:
30 year fixed: 5.375% (APR 5.60) payments are $1,807.03/mo.
15 year fixed: 4.75% (APR 5.13%) payments are $2,510.06/mo.