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Encyclopedia > Mortgage broker

A mortgage broker acts as an intermediary who sources mortgage loans on behalf of individuals or businesses. Mortgage loan is the generic term for a loan secured by a mortgage on real property; the mortgage refers to the legal security, but the terms are often used interchangeably to refer to the mortgage loan. ...


Traditionally, banks and other lending institutions have distributed their own products. However as markets for mortgages have become more competitive, the role of the mortgage broker has become more popular. Today in most developed mortgage markets (especially the U.S., UK, Australia, Spain and Canada) mortgage brokers are the largest distributors of mortgage products for lenders. Motto: (Out Of Many, One) (traditional) In God We Trust (1956 to date) Anthem: The Star-Spangled Banner Capital Washington D.C. Largest city New York City None at federal level (English de facto) Government Federal constitutional republic  - President George Walker Bush (R)  - Vice President Dick Cheney (R) Independence from...


The majority of mortgage brokers are regulated to ensure a level of protection for the consumer. The extent of the regulation depends on the jurisdiction.

Contents

Mortgage brokers as specialized intermediaries

In competitive mortgage markets many lenders use an array of rate offers and other incentives to attract customers. To many consumers, due to their infrequent purchases of mortgage products, the mortgage market may appear confusing and somewhat daunting. A mortgage broker can assist in selecting a suitable mortgage and offer mortgage and property related financial advice. Strictly speaking, a broker is someone who does not close in his name, and is required to disclose his yield spread premium. A banker (correspondent) closes the loan in his own name, and is not required to report his YSP. Correspondents typically sell the loan quickly to a larger lender. Financial Advice is advice given in relation to financial matters such as investing, insurance, borrowing, saving and retirement planning. ... A revenue percentage earned usually by a loan originator and determined by the difference between the PAR rate and what the borrower is charged. ...


For borrowers with poor credit records, or other unusual circumstances, finding a lender may be difficult. A mortgage broker may have specialized knowledge and multiple lending sources, and may be able to identify appropriate lenders for each class of borrower.


Tasks of mortgage broker

The nature and scope of a mortgage broker's activities varies with jurisdiction. For example in the UK anyone offering mortgage brokerage is offering a regulated financial activity; the broker is responsible for ensuring the advice is appropriate for the borrowers' circumstances and is held financially liable if the advice is later shown to be defective. In other jurisdictions the transaction undertaken by the broker may be limited to pointing the borrower in the direction of an appropriate lender and no advice given.


Therefore the work undertaken by the broker will depend on the depth of their service and liabilities. Typically the following tasks are undertaken:

  • Marketing to attract clients
  • Assessment of the borrowers circumstances. This may include assessment of credit history (normally obtained via a credit report) and affordability (verified by income documentation).
  • Assessing the market to find a mortgage product that fits the clients needs.
  • Applying for a lenders agreement in principle (pre-approval)
  • Gathering all needed documents (paystubs/payslips, bank statements, etc.),
  • Completing a lender application form.
  • Explaining the legal disclosures.
  • Submitting all material to the lender.

A pay stub, paystub, payslip, or sometimes paycheck stub is a document that an employee receives either as a notice that the direct deposit transaction has gone through, or as part of their paycheck. ... This page is a candidate to be copied to Wiktionary. ... This page is a candidate for speedy deletion. ...

Mortgage brokerage in the USA

According to a 2004 study by Wholesale Access Mortgage Research & Consulting, Inc., there are approximately 53,000 mortgage brokerage companies that employ an estimated 418,700 employees and originate more than 50% of all residential loans in the U.S.. The mortgage broker industry is regulated by 10 federal laws, five federal enforcement agencies and over 49 state laws or licensing boards. Motto: (Out Of Many, One) (traditional) In God We Trust (1956 to date) Anthem: The Star-Spangled Banner Capital Washington D.C. Largest city New York City None at federal level (English de facto) Government Federal constitutional republic  - President George Walker Bush (R)  - Vice President Dick Cheney (R) Independence from...


Mortgage brokers participate in more than 68% of home loans originations. The remaining 32% is retail done through the lenders retail channel, which means the lender does not go through a broker.


The banks have used brokers to outsource the job of finding and qualifying borrowers, and also to outsource some of the liabilities for fraud and foreclosure onto the originators through legal agreements.


During the process of loan origination, the broker gathers and processes paperwork associated with mortgaging real estate. This article is about the legal mechanism used to secure property in favor of a creditor. ... Real estate is a legal term that encompasses land along with anything permanently affixed to the land, such as buildings. ...


Difference between a mortgage broker and a loan officer

A mortgage broker works as a conduit between the buyer and the lender, the loan officer typically works directly for the lender. Most states require the mortgage broker to be licensed. States regulate lending practice and licensing, but the rules vary. Most have a license for those who wish to be a "Broker Associate", a "Brokerage Business", and a "Direct Lender".


A mortgage broker is normally registered with the state, and personally liable (punishable by revocation or prison) for fraud for the life of a loan. A loan officer works under the umbrella license of their current institution. Both positions have legal, moral, and professional liabilities to prevent fraud and fully disclose loan terms.


Typically, a mortgage broker will make more money per loan than a loan officer, but a loan officer can utilize the referral network available from the lending institution to sell more loans. There are mortgage brokers and loan officers at all levels of experience.


Industry competitiveness

A large segment of the mortgage finance industry is commission based. Potential clients can compare a lender's loan terms to those of others through advertisements or internet quotes.


In the 1970s, mortgage brokers did not have access to wholesale markets, unlike traditional bankers. Today, mortgage brokers are more competitive with their access to wholesale capital markets and pricing discounts. A mortgage broker has lower overhead costs compared to large and expensive banking operations because of their small structure.[citation needed] They can lower rates instantly to compete for clients. On the other hand, larger companies are less competitive since they provide their sales representatives their fixed rate sheets. The loan officer often cannot reduce their companies profit margin and may be higher or lower than the marketplace, depending on the decision of managers. Thus, mortgage brokers have gained between 60-70% of the marketplace.


Mortgage brokers can obtain loan approvals from the largest secondary wholesale market lenders in the country. For example, Fannie Mae may issue a loan approval to a client through its mortgage broker, which can then be assigned to any of a number of mortgage bankers on the approved list. The broker will often compare rates for that day. The broker will then assign the loan to a designated licensed lender based on their pricing and closing speed. The lender may close the loan and service the loan. They may either fund it permanently or temporarily with a warehouse line of credit prior to selling it into a larger lending pool.


The difference between the "Broker" and "Banker" is the banker's ability to use a short term credit line (known as a warehouse line) to fund the loan until they can sell the loan to the secondary market. Then, they repay their warehouse lender and obtain a profit on the sale of the loan. The borrower will often get a letter notifying them their lender has sold or transferred the loan.


Brokers must also disclose Yield spread premium while Bankers do not. This has created an ambiguous and difficult identification of the true cost to obtain a mortgage. The stricter Broker disclosure requirements, especially the Good Faith Estimate, can often create the illusion that they are charging more to obtain the exact same mortgage when compared to a Banker, when in fact they may cost the same or the Brokers offer may even be less costly. This topic has been hotly debated on Capitol Hill and state level judiciary committees. A revenue percentage earned usually by a loan originator and determined by the difference between the PAR rate and what the borrower is charged. ...


Also See: Predatory lending & Mortgage fraud Le Mont-de-Piété (The Pawn Shop) or Chez Ma Tante by Jean Béraud Predatory lending is the practice of a lender deceptively convincing borrowers to agree to unfair and abusive loan terms, or systematically violating those terms in ways that make it difficult for the borrower to... Mortgage fraud is a term used to describe a broad variety of actions where the intent is to materially misrepresent information on a mortgage loan application, in order to obtain the loan. ...


Sometimes they will sell the loan, but continue to service the loan. Other times, the lender will maintain ownership and sell the rights to service the loan to an outside mortgage service bureau.


Secondary market influence

Even large companies with a lending license sell, or broker, the mortgage loan transactions they originate and close. A smaller percentage of bankers service and keep their loans than those in past decades. Banks act as a broker due to the increasing size of the loans because few can use depositor's money on mortgage loans. A depositor may request their money back and the lender would need large reserves to refund that money on request. Mortgage bankers do not take deposits and do not find it practical to make loans without a wholesaler in place to purchase them. The required cash of a mortgage banker is only $50,000 in New York. The remainder may be in the form of property assets (an additional $200,000), an additional credit line from another source (an additional $1,000,000). That amount is sufficient to make only two median price home loans. Therefore, mortgage lending is dependent on the secondary market, which includes securitization on Wall Street and other large funds.


The top wholesale institutions are Federal National Mortgage Association, and the Federal Home Loan Mortgage Corporation, commonly referred to as Fannie Mae and Freddie Mac, respectively. Loans must comply with their jointly derived standard application form guidelines so they may become eligible for sale to larger loan servicers or investors. These larger investors could then sell them to Fannie Mae or Freddie Mac to replenish warehouse funds. The goal is to package loan portfolios in conformance with the secondary market to maintain the ability to sell loans for capital. If interest rates drop and the portfolio has a higher average interest rate, the banker can sell the loans at a larger profit based on the difference in the current market rate. Some large lenders will hold their loans until such a gain is possible. The Federal National Mortgage Association (FNMA) (NYSE: FNM), commonly known as Fannie Mae, is a government sponsored enterprise (GSE) sponsored by the United States government. ... The Federal Home Loan Mortgage Corporation (FHLMC) NYSE: FRE, commonly known as Freddie Mac, is a government sponsored enterprise (GSE) sponsored by the United States Government. ... The United States Federal Government created the Federal National Mortgage Association (FNMA) (NYSE: FNM), commonly known as Fannie Mae, in 1938 to establish a secondary market for mortgages insured by the Federal Housing Administration (FHA). ... The Federal Home Loan Mortgage Corporation (Freddie Mac) (NYSE: FRE) is a stockholder-owned, publicly-traded company chartered by the United States federal government in 1970 to purchase mortgages and related securities, and then issues securities and bonds in financial markets backed by those mortgages in secondary markets. ...


The selling of mortgage loans in the wholesale or secondary market is more common. They provide permanent capital to the borrowers. A "direct lender" may lend directly to a borrower, but can have the loan pre-sold prior to the closing.


Few lenders are comprehensive. That is, few close, keep, and service the mortgage loan. The term is known as portfolio lending, indicating that a loan has been made from funds on deposit or a trust. That type of direct lending is uncommon, and has been declining in usage.


Improved consumer laws

The laws have improved considerably in favor of consumers. A mortgage broker must comply to standards set by law in order to charge a fee to a borrower. The fees must meet an additional threshold, that the combined rate and costs may not exceed a lower percentage, without being deemed a "High Cost Mortgage". An excess would trigger additional disclosures and warnings of risk to a borrower. Further, the mortgage broker would have to be more compliant with regulators. Costs are likely lower due to this regulation.


Mortgage bankers and banks are not subject to this cost reduction act. Because the selling of loans generates most lender fees, servicing the total in most cases exceeds the high cost act. Whereas mortgage brokers now must reduce their fees, a licenced lender is unaffected by the second portion of fee generation. This is due to the delay of selling the servicing until after closing. Therefore, it is considered a secondary market transaction and not subject to the same regulation.


Brokers and client's interests

As of 2007, in the United States the federal law and most state laws do not assign a fiduciary duty on mortgage brokers to act in best interests of their customers. An exception of California, where a 1979 ruling of the Supreme Court of California did establisged fiduciary duties of mortgage brokers [1] This means that consumers may be charged excessive rates and fees, if the did not do diligent shopping. A fiduciary is a person who occupies a position of trust in relation to someone else such that he is required to act for the latters benefit within the scope of that relationship. ... Official language(s) English Capital Sacramento Largest city Los Angeles Area  Ranked 3rd  - Total 158,302 sq mi (410,000 km²)  - Width 250 miles (400 km)  - Length 770 miles (1,240 km)  - % water 4. ... Justices of the Supreme Court of California (circa May 2005). ...


Predatory lending and Mortgage servicing fraud

Predatory lending runs unregulated in the mortgage services industry. Consumers are often victims of predatory lending according to CNN. The main concern is that mortgage brokers and lenders whilst operating legally, are dishonestly finding loopholes in the law to obtain additional profit. The main culprit is a little known fee called Yield spread premium, which is a cash rebate wholesale lenders pay to brokers for charging a borrower a higher interest rate than they qualify for. A revenue percentage earned usually by a loan originator and determined by the difference between the PAR rate and what the borrower is charged. ...


Some signs of predatory lending include:

  • Falsifying income/asset and other documentation.
  • Not disclosing Yield spread premium or other hidden fees BEFORE the settlement/closing.
  • Failing to provide all RESPA documentation, i.e. Good Faith Estimate, Special Information Booklet, Truth in Lending, etc so the borrower may clearly understand the mortgage terms and lender policies.
  • Convincing borrowers to refinance a loan without any true benefit.
  • Influencing a higher Loan Amount and inflated appraisals (usually in tandem with an appraiser).
  • Unjustly capitalizing on a borrowers relative ignorance about mortgage acquisition.

Another unethical practice involves inserting hidden clauses in contracts in which a borrower will unknowingly promise to pay the broker or lender to find him or her a mortgage whether or not the mortgage is closed. Though regarded as unethical by the National Association of Mortgage Brokers, this practice is perfectly legal. Often a dishonest lender will convince the consumer that he or she is signing an application and nothing else. Often the consumer will not hear again from the lender until after the time expires and then they are forced to pay all costs. Potential borrowers may even be sued without having legal defense. A revenue percentage earned usually by a loan originator and determined by the difference between the PAR rate and what the borrower is charged. ... Please wikify (format) this article or section as suggested in the Guide to layout and the Manual of Style. ... A loan is a type of debt. ... The National Association of Mortgage Brokers, or NAMB is described as the only national trade association representing the mortgage broker industry in the United States. ...


Mortgage brokerage in Canada

The laws governing mortgage brokerage in Canada are determined by provincial governments. Throughout Canada, high ratio loans are insured by either the Canada Mortgage and Housing Corporation or Genworth Financial. Canada Mortgage and Housing Corporation (CMHC) is a Canadian government agency. ... Genworth Financial is a financial services organization that offers of a portfolio of primarily consumer focused products, including life insurance, retirement income and investments, long term care, employer benefits, mortgage insurance and payment protection insurance. ...


Quebec is unique in all of North America as its laws are based on the Civil Code. The law permits mortgage brokerage to be performed by those in the finance industry, as well as those in the real estate industry. Motto: Je me souviens (French: I remember) Capital Quebec City Largest city Montreal Official languages French Government - Lieutenant-Governor Lise Thibault - Premier Jean Charest (PLQ) Federal representation in Canadian Parliament - House seats 75 - Senate seats 24 Confederation July 1, 1867 (1st) Area Ranked 2nd - Total 1,542,056 km² - Water... The Civil Code of Québec (Code civil du Québec) is the civil code in force in the province of Quebec, Canada. ...


References

  1. ^ Mortgage Brokers: Friends or Foes? the Wall Street Journal Online May 30, 2007

The Wall Street Journal (WSJ) is an influential international daily newspaper published in New York City, New York with a worldwide average daily circulation of more than 2. ... May 30 is the 150th day of the year in the Gregorian calendar (151st in leap years). ... 2007 (MMVII) is the current year, a common year starting on Monday of the Gregorian calendar and the AD/CE era. ...

External links


  Results from FactBites:
 
Mortgage Broker Registration (1758 words)
Only those mortgage brokers who are registered or exempt from registration by law may broker a mortgage, offer to broker a mortgage, act as a mortgage broker, or offer to act as a mortgage broker.
Definition of a mortgage broker: mortgage broker means an individual who negotiates, originates, or offers or attempts to negotiate or originate for a borrower, and for a commission or other thing of value, a loan to be consummated and funded by a mortgage lender.
Broker a mortgage: broker a mortgage means to directly or indirectly act as a mortgage broker.
Mortgage broker - Wikipedia, the free encyclopedia (2034 words)
A mortgage broker is normally registered with the state, and personally liable (punishable by revocation or prison) for fraud for the life of a loan.
Whereas mortgage brokers now must reduce their fees, a licenced lender is unaffected by the second portion of fee generation.
Though regarded as unethical by the National Association of Mortgage Brokers, this practice is perfectly legal.
  More results at FactBites »

 
 

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