Mortgage Brokers

Seventy percent of home loans are initiated by mortgage brokers. Although there are some advantages to using a mortgage broker, one must proceed with caution. Mortgage brokers receive fees and incentives for their services, and have little incentive to find you a mortgage loan that has fewer fees. The broker stands to profit by selling you a mortgage with unattractive rates, hidden costs and pre-payment penalties.

A mortgage broker is not the originator of a loan. The broker does not make the loan directly, but acts only as a middleman between the lender and borrower. As such, the broker is not subject to the same regulations as mortgage companies and banks. While a good broker will be knowledgeable about mortgages, and real estate, in the general sense, there is very little oversight in the mortgage brokerage business.

Because they do not lend money themselves, there are no financial requirements to start a mortgage brokerage business, and in some states, anyone who has the wherewithal to print some business cards can call themselves a mortgage broker. Ultimately, the best mortgage broker will be one who has been in the real estate or financial services industry, and has plenty of connections.

In response to predatory lending practices, many states have recently started to initiate licensing requirements for mortgage brokers. Requirements vary from state to state, and may include requirements for posting of a performance bond, education or experience in the mortgage industry, passing an exam, and possessing a physical place of business within the state.

While some states have stiff requirements, others merely issue licenses to anyone who pays the fee, and other states have no requirements at all. Texas, for example, requires mortgage brokers to post a $50,000 surety bond, have a bachelor’s degree in finance, banking, or business administration, and 18-36 months experience in the industry. Iowa brokers must post a $15,000 surety bond, but have no other requirements. In Kansas, brokers are licensed but do not have to meet any specific requirements, and in Alabama, there is no licensing at all.

An honest broker can be a valuable asset to a borrower, in providing information on many different lenders and in finding the best rates and terms available. Often, a broker will have connections or access to mortgage lenders that a borrower would not otherwise have approached. Your mortgage broker will also be a valuable source of information about how to qualify for a mortgage, and may be able to assist you in finding the best house for your financial situation.