What is a mortgage broker?

Mortgage broker

A mortgage broker locates lenders who offer loans, prices, and conditions that meet your requirements. During the mortgage application process, they undertake a lot of the legwork for you, potentially saving you time. A mortgage broker can help you secure a mortgage from a large bank if that is something you prefer. When working with a mortgage broker, they have the ability to shop your loan with multiple Lenders or Banks so that the client gets the benefit of using the Bank with the lowest rate. Many times the rate from the wholesale bank will be lower than the rate with the exact same Bank you can get on your own. 

Don’t worry if your financial position is a little unusual, it is the role of a mortgage broker to match you with the best lender based on your financial situation.  A mortgage broker can work with you even if you are self-employed or have had credit problems in the past.  If you are having problems obtaining an approval for a mortgage, a good mortgage broker may be able to help

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Duties of a mortgage broker

  • Understand the financial situation of the client
  • Educate the client on various loan options
  • Search for the best lender to work with
  • Submit required documents for loan approval
  • Work with lender to obtain the clear to close
 

Is it worth getting a mortgage broker?

A mortgage broker can help with people who normally have more challenging scenarios and lower credit scores.  However, working with a lender who has significant experience with challenging scenarios and has flexible guidelines, that lender can obtain an approval with the same frequency as a broker.   Most people don’t understand that a mortgage lender near Greenville can be just as flexible and sometimes more flexible than a broker.  Make sure you do the due diligence required to see if a broker is the best option.

Mortgage broker may have better access

Some lenders only work with mortgage brokers, relying on them to be the gatekeepers who bring them qualified consumers. You might not be able to secure a retail mortgage by calling some lenders directly. Due to the volume of business generated, brokers may be able to obtain special rates from lenders that are cheaper than what you can acquire on your own.

The mortgage broker’s task will be determined by the breadth of his or her services and obligations.

Normally, the following tasks are completed:

  • Attracting customers through marketing.
  • Examination of the borrower’s circumstances (interview with mortgage fact discover forms) – this may involve a review of the borrower’s credit history (usually obtained through a credit report) and affordability (verified by income documentation).
  • Examining the market for a mortgage package that meets the client’s requirements (presentation/recommendations on mortgages).
  • Requesting a letter of intent from a lender (pre-approval).
  • Assembling all necessary documents (pay stubs/slips, bank statements, and so forth)
  • Filling out a lender application form that includes legal disclosures.
  • Sending all documentation to the lender and keeping their responsibility by saving their clients as much money as feasible, by providing the best recommendations for their situation.
 

What is the relationship between a mortgage broker and a wholesale lender?

A mortgage broker only has access to the loan programs of a Wholesale Lender.  The mortgage broker has to get signed up with and approved by the Wholesale Lender in order to have loan options for their clients.   The mortgage broker is a third party who acts on behalf of the Wholesale Lender to obtain clients for the Wholesale Lender.  The mortgage loan is underwritten and funded by the Wholesale Lender and the mortgage broker gets paid by the Wholesale Lender once the loan is closed and funded.

What is the difference between a Mortgage Broker and a Loan Officer?

A Mortgage Broker acts as a middleman between the borrower and the lender (banks and non-bank lenders), whereas a Loan Officer normally works directly for the lender. Sometimes a mortgage broker is referred to as a Loan Officer as well. However, the main difference between the two is that a mortgage broker works as a third party to a wholesale lender and the Loan Officer usually works directly for the lending institution.

Lending practices and licenses are regulated by individual states and the requirements differ from one state to the next. However, all states require Mortgage Brokers and Loan Officers to be licensed or registered in some capacity. A mortgage broker is usually required to be licensed and registered with the state and is personally accountable for fraud (which can result in license revocation or imprisonment) for the duration of the loan. A Loan Officer can be employed by an institution, such as a bank, under the umbrella license of that institution or have an individual license if employed by a mortgage company or mortgage lender. Both a mortgage broker and a loan officer are licensed through the National Multi-State Licensing System and Registry (NMLS). The purpose of the NMLS is to bring the benefits of local, state-based financial services regulation to a national platform, allowing for better coordination and information sharing among regulators, increased industry efficiencies, and improved consumer protection. Loan officers who work for a depository institution must register with the NMLS, but they do not need to be licensed.

A mortgage broker often makes more money per transaction than a Loan Officer, but a Loan Officer usually closes more loans due to more control of the process, as well as many other factors.

Industry competitiveness

A significant portion of the mortgage finance sector is reliant on commissions. Advertisements or online quotes allow potential clients to compare a lender’s loan terms to those of it’s rivals. Mortgage Brokers can get loan approvals from some of the country’s largest secondary wholesale market lenders. Fannie Mae, for example, may provide a loan approval to a client through its Mortgage Broker, which can then be allocated to any of the approved lists of Mortgage Bankers. Frequently, the Broker will compare rates for that day. Based on pricing and closing timeliness, the Broker will assign the loan to a designated licensed lender. The lender has the option of closing and servicing the loan. Prior to selling it into a wider lending pool, they can either fund it permanently or temporarily with a warehouse line of credit.

The ability of the Banker to use a short-term credit line (known as a warehouse line) to fund the loan, until it can be sold on the secondary market, is the distinction between the “Broker” and “Banker.” Then they pay back their warehouse lender and profit from the loan sale. A letter will usually be sent to the borrower informing them that their lender has sold or transferred their loan. Some jurisdictions compel bankers who sell the majority of their loans but do not actively service them, to tell their clients in writing. New York State regulations, for example, require a non-servicing “Banker” to declare the exact percentage of loans that are genuinely funded and serviced rather than sold/brokered.

Mortgage brokers must also disclose the Yield spread premium, whereas Bankers are not required to do so. As a result, determining the exact cost of obtaining a mortgage has become unclear and complex. Whether you’re shopping for a Mortgage Broker or a direct lender, the government introduced a new Good Faith Estimate (2010 edition), to allow customers to compare apples to apples in all expenses associated with a mortgage. Some Mortgage Brokers were using bait and switch methods, quoting one rate and costs only to change before the loan documentation had been prepared, according to the authorities. Despite the fact that it is questionable for mortgage brokers to disclose this, they decide what fees to charge up front, whereas the direct lender won’t know how much money they gain until the loan is sold.

 

Secondary market influence

The mortgage loan transactions that large organizations with lending licenses generate and close, are sold or brokered. In comparison to previous decades, a smaller percentage of Bankers service and keep their loans. Due to the increasing size of loans and the fact that few depositors can utilize their money on mortgage loans, banks serve as a Broker. A depositor could ask for their money back, and the lender would require a lot of reserves to do so. Mortgage lenders do not accept deposits and do not believe it is feasible to provide loans without a wholesaler to buy them. In New York, a mortgage banker simply needs $500,000 in capital. The remaining funds might come from property assets (an extra $2.00) or a new credit line from another source (an extra $10,000,000). Only two median-priced home loans can be made with that amount. As a result, mortgage lending is reliant on the secondary market, which includes Wall Street securitization and other major funds.

The Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation, also known as Fannie Mae and Freddie Mac, are the two largest secondary markets in terms of mortgage volume. All loans including Conventional or rural USDA loans must follow the requirements on their jointly developed standard application form in order to be sold to larger loan services or investors. To refill warehouse funds, these larger investors may sell them to Fannie Mae or Freddie Mac. The purpose is to package loan portfolios in a secondary market-compliant manner, in order to keep the capacity to sell loans for capital. If interest rates fall and the portfolio’s average interest rate rises, the Banker can sell the loans for a higher profit depending on the difference between the current market rate and the portfolio’s average interest rate. Until such a gain is achievable, several large lenders will keep their loans.

Mortgage loans are more commonly sold in the wholesale or secondary market. They supply borrowers with long-term capital. A “direct lender” can lend directly to a borrower but can also pre-sell the loan before it closes. Only a few lenders are full-service or “portfolio lenders.” That is, only a small percentage of mortgage loans get closed, kept, and serviced. Portfolio lending refers to a loan issued using funds on deposit or from a trust. This sort of direct lending is uncommon, and its use has been on the decline.

How far in advance should you talk to a Mortgage Broker?

If you are thinking about buying a house, it is best to speak with a mortgage broker or mortgage lender as soon as possible. This will allow the client to understand their credit scores, loan programs available for that credit score, down payment requirements, as well as many other things that will be helpful in understanding your ability and time frame for purchasing a house.

When you have a down payment saved.

It’s a good idea to visit with a mortgage broker if you’ve saved up enough money to make a down payment on a home. This can help you figure out how much house you can afford with your down payment. If you don’t have enough money saved for a typical down payment on the home you desire, you might be able to get a loan with a lower interest rate.

When you have unique borrowing challenges.

A mortgage broker will have prior expertise assisting customers with special needs in obtaining loans. Brokers are more experienced with lenders who cater to non-traditional customers if you have a lower credit score, a smaller down payment, or intermittent or non-W2 income. They can assess your prospects of approval and suggest loan products that are best suited to your needs.

When you are planning to talk to a real estate agent.

If you’re looking for a realtor or will be meeting with one soon, now is a good time to get your paperwork in order and speak with a mortgage specialist about getting pre-approved for a loan. When you meet with a realtor or a possible seller, you can show how serious you are about buying a home. Pre-approval shows that you are serious about buying a property and that you have the financial resources to do so.

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