Mortgage brokers work with rate comparisons and approvals, assigning loans to a designated licensed lender depending on a couple of different factors, like pricing and expedient closing. Closing and servicing will most likely fall into the hands and lap, areas of responsibility of the lending institution, not the broker.
The top wholesale institutions playing in this type of arena include (i) Federal National Mortgage Association and (ii) Federal Home Loan Mortgage Corporation
(** NOTE: Also called Fannie Mae and Freddie Mac, respectively).
Lately, more legislation and regulations, governments and related bodies overseeing the industry is and will continue to be cracking down increasingly on fraudulent mortgages and wrangling in this arena.
Here is just some of the fall-out that you can expect in these markets:
– Additional disclosures and warnings of risk have to be shared and made public to a borrower.
– As far as actual costs then go for this type of service, public domain documents list them as the combined rate and costs may not exceed a lower percentage, without being deemed a “High Cost Mortgage”.
– Compliance with regulators drive costs typically lower, not higher
– It has to be a reasonable and market-competitive, standard fee, not excessive
– mortgage brokers and brokering activities must comply to standards set by law in order to charge a fee to a borrower
By law there is no fiduciary duty on mortgage brokers to act in best interests of their customers (except for California)
Warning signs of troublesome trends in the industry that give mortgage brokering a bad rep (taken and adapted from online sources):
– Convincing borrowers to refinance a loan without any true benefit
– 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.
– Falsifying income/asset and other documentation.
– Influencing a higher Loan Amount and inflated appraisals (usually in tandem with an appraiser).
– inserting hidden clauses in contracts that forces the hand of the consumer to pay the broker or lender to find him or her a mortgage whether or not the mortgage is closed.
– Not disclosing Yield spread premium or other hidden fees BEFORE the settlement/closing.
– unethical business practices
– Unjustly capitalizing on a borrowers relative ignorance about mortgage acquisition.
It there is increased interest for entering into this entrepreneurial pursuit, tapping into all it has to offer (even in a downturn type market), you best be prepared for the under-belly wheeling and dealings that sometimes threaten the integrity and reputation of the industry. It is up to you on which side of the fence you prefer to earn your reputation and dollar.