Monday, August 14, 2006

Mortgage Broker (kinda) Defined

The mortgage lending business has being evolving so rapidly the last few years that it’s hard to keep track of all of the changes and trends. I’ve frequently read that approximately 70% of all mortgages are originated by Mortgage Brokers nationwide. That’s a vast majority of mortgage loans. I think the reason for this is Mortgage Brokers tend to be smaller entities and more able to sense a change in the marketplace and act on it.
In my opinion, large lenders such as Citi Group, Wells Fargo, and Chase are divided into two separate mortgage lending entities. One is their retail operations located in their branches or mortgage lending storefronts and the other is their wholesale lending operations. Mortgage Brokers work with the wholesale lending operation. The Mortgage Broker is the retail presence of the lending products.
They seem to compete against one another as well. Sometimes the retail operations will have a better deal than the wholesale division on a specific product like a Home Equity Line of Credit, or a 30 year fixed rate conforming mortgage, while the wholesale division may do better with jumbo mortgages or interest only solutions. These products are merely examples for this description, not intended to state any specifics of the marketplace at this time.
Thus, a Mortgage Broker generally isn’t more expensive to the consumer, and may possibly be a better deal. I recently originated a fixed rate mortgage on a new construction condo here in New York City in which my rates, terms and closing costs were less than a major bank’s employee benefit program, which was a surprise to me.
The frequent perception that Mortgage Brokers are better able to provide more lending solutions to an individual consumer is true. We are able to scan through many lenders finding each one’s best programs (which I think are largely driven by the secondary mortgage market) and offer the best to our clients. This is the one major advantage that we have.
Another advantage, in my opinion, is the transparency of the process when working with a Mortgage Broker. Mortgage Brokers must disclose all fees and their commission whether payable by the lender or the client. All of my clients are aware of my firm’s commission on every deal. Everything is upfront and above board. That’s not true with lenders who do not have the same disclosure requirements.Also I’m able to maintain my relationship with a client for longer, I believe. Perhaps a client and I first work together on a primary residence purchase. Then later, this same client may decide to purchase a second home, or a coop for their child, or an investment property. I can provide solutions for all of these purchases. I don’t have to say to a client with whom I’ve built trust and commitment that I cannot do this deal and they will have to call someone else and establish a whole new working relationship. That puts them back to square one again, back to the uneasiness and uncertainty of working with someone for the first time.

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