President John F. Kennedy once said, “Life wasn’t fair”.
Words of wisdom for mortgage brokers today. Mortgage brokers, fairly or unfairly, were assigned a good deal of blame for the relaxed standards in the mortgage industry that led to millions of financially unqualified borrowers to get home loans back in the middle of the decade.
When the stuff hit the fan, and scores of U.S. homes went into foreclosure, the mortgage brokerage industry took a bit public relations hit. It’s not that many brokers did not deserve the criticism; in Florida alone, 10,000 mortgage brokers were found to have criminal records in 2008, according to the Miami Herald. And few doubt that third-party home loans were at the vortex of the lending industry’s balance sheet problems.
But that doesn’t mean all, or even most mortgage brokers are unethical, or more importantly, unhelpful. On the contrary, mortgage brokers can help a home borrower in many ways.
But you have to be cautious and you have to be careful. If you opt to work with a mortgage broker, keep the above themes in mind – and keep these tips in mind as well.
Waning influence - To start, know that the home borrowing landscape has shifted, and it’s shifted against mortgage brokers. The New York Times (Stock Symbol: NYT) reports that some of the largest mortgage industry players flat out won’t work with a mortgage broker. The Times cites The PMI Group (Stock Symbol: PMI), one of the biggest firms in the mortgage insurance market, as refusing to “underwrite any policies on loans that started with a broker.” In addition, JP Morgan Chase (Stock Symbol: JPM) has decided not to work with the clients of mortgage brokers. So, if you do want to work with a mortgage broker, find out first whether or not that can shut you out of a good deal on a loan or on homeowner’s insurance. A good real estate agent should help in that regard.
What’s in it for the broker? Always know what skin a potential mortgage broker has in the game. Historically, mortgage brokers act a sort of a middleman between lenders and borrowers. They have access (the good ones, anyway) to dozens of good lenders with deals on loans and interest rates. They help lenders by bringing customers directly to their doorstep. But in the end, a mortgage broker’s interest is strictly self-interest. If they think they can get you a loan, don’t think that your welfare is their primary interest. It may not be, and you might feel the impact in your wallet. As an example, according to a study by the U.S. Dept. of Housing and Urban Development, of over 7,500 Federal Housing Administration loans made in 2001, borrowers shelled out, on average, up to $425 more in fees when dealing with a mortgage broker.
Do your homework – You can hire a great mortgage broker, but you still have to protect yourself. So it’s to your benefit to thoroughly compare costs and rates, and it’s up to you to make sure you get a good faith estimate that hammers out the costs in a loan. If a mortgage broker balks at giving you a good faith estimate, keep looking – some unscrupulous brokers may add fees that the lender isn’t demanding you pay.
Think about what a broker can do for you – Goodness knows, mortgage brokers have an image problem these days. But there are many honest ones who can really help smooth over your mortgage borrowing process. After all, they know what you, the customer, needs; they have more credible mortgage options that you may likely dig up; they understand the nuances and trends of the ever-dynamic real estate market; and, since they often work with wholesalers, mortgage brokers might well wind up getting you a better deal.
Conduct a job interview - You might have to break a sweat finding a good mortgage broker. Start by asking friends, family, and co-workers for some word of mouth recommendations. If you’re working with a real estate agent, get their take, as well – they have access to good local brokers who they’ve worked with, time and time again.
When you interview your mortgage broker (and you should), make sure to ask how much experience they have. Anything less than a year or two is a red flag. Also, ask how they’re paid, and ask them to guarantee a good faith estimate.
Your best shot at finding a good mortgage broker (and they are out there) is to handle the due diligence yourself, and proceed carefully. Working in your favor is the fact that mortgage brokers know their reputation is on the line, so they should bend over backwards to give you a fair shake.
And … a good deal.
—For the best rates on loans, bank accounts and credit cards, enter your ZIP code at BankingMyWay.com.