Do mortgage brokers give consumers better deal on loans?
Great rate, customer service top list of must-haves
By Ilyce Glink, Thursday, May 1, 2008.Q: I am buying a new home and want to know if there is an advantage to getting the mortgage through a mortgage broker versus one of the big banks in town.
A: A mortgage broker represents what we call "end" lenders. These are companies that invest in mortgage loans. Some of these end lenders can even be big banks. So the mortgage broker arranges for you to get the financing you need to buy your house, and then checks to see which end lender is interested in buying the paper on that loan. You could go to a mortgage broker in your city and end up with a loan from one of your big banks in town.
When you use a mortgage broker, you get your money, and the investor gets an investment. The broker gets a fee for providing the loan. In some cases, if you pay points to reduce the interest rate on your loan, some of that payment may compensate the mortgage broker. But generally, the end lender pays a fee to the mortgage broker to get you as a customer.
Once your loan is sold off to another lender, you may find that your loan is serviced through a different company. That company is there to collect the monthly payments you owe and to service your loan.
A mortgage banker (your big local bank could be a mortgage banker) also works on the origination side of the business. The mortgage banker may give you the loan and in some cases may even keep the loan and service it. If you have a question about your loan after you close on the loan, you'd call the bank. In other words, a mortgage banker might do everything from arranging the loan, closing on the loan, providing the financing, servicing your new mortgage, and making sure your real estate taxes are paid.
In many cases, the mortgage banker might turn around and sell your loan to Fannie Mae, Freddie Mac or another investor that is interested in buying that kind of investment. The mortgage banker may still service the loan, but the loan is actually held by an investor or other company.
From your point of view, it shouldn't matter whether you use a mortgage broker or a mortgage banker. What you need to do is find a lender that provides a great rate, a loan program you like, and terrific customer service. You shouldn't feel pressured by the lender, and if you do, you should walk out and find another lender.
Q: If someone does a quitclaim, how long does it take for you to completely be on the loan and the other party is off the loan?
A: I think you may be a little confused about what a quitclaim deed is and what it does with regard to the mortgage.
A quitclaim deed transfers any interest a person has in a piece of real estate to another person. I could give you a quitclaim deed to the Brooklyn Bridge, for example. Would you own it? No, because I don't have any ownership interest in that piece of real estate.
But a quitclaim deed doesn't have anything to do with the financing of a piece of property. So, let's say I actually own a lovely house at 123 Bank Ave., Anywhere, U.S. And, let's say that I have a mortgage for $100,000 on the property.
If I execute a quitclaim deed granting you any interest I own in 123 Bank Ave., you would then own the property. But what happens to the mortgage? It's still there, and my name is on it. In fact, I've probably violated the terms of my mortgage, which require me to own 123 Bank Ave. as long as I still have a mortgage, since the property is the collateral for the loan.
You could try to refinance 123 Bank Ave., and you might get away with it -- in the short run. But a simple title search would turn up the existing mortgage lien to the property to my lender.
Meanwhile, my lender could call the loan and force me to repay the lender the amount owing on the loan.
If you obtain title to the property by quitclaim deed or by any other deed, your name will never be "on" the loan unless you take out a new loan in your name. Unless the person that took out the loan in his or her name pays off the loan, that person's name will remain "on" the loan until the loan is paid off in full.
For more details, please talk to a real estate attorney.
To get even more valuable advice from Ilyce, visit her Personal Finance and Real Estate Center.
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Submitted by David Podgursky on May 1, 2008 - 6:34am.
1) Mortgage Broker vs Bank was the question asked Ilyce.
a) In some states there is no difference because many states enforce licensure so the Mortgage Broker is a licensed party - either a company like in New York - or an individual as in Florida and many other states. A loan originator that gets licensed by the state but does not work directly for a bank is a Broker - a 3rd party who originates loans for consumers.
The BIGGEST difference is NOT as you suggest... the difference that makes the most difference for the consumer (especially in Florida) is that the Licensed Individual is a Fiduciary Agent of the CONSUMER. A Bank employee is a Fiduciary Agent of the Shareholders in the Bank!
Licensure also implies education. Brokers must undergo training via State mandate for pre-licensure as well as continuing education. Bank employees are often only Loan Application takers with no formal training in Credit, Income and Assets. They plug numbers into the bank's computer and read what it spits out.
b) Wholesale vs Retail.. a Broker "buys a loan" at a wholesale rate from a Bank or a Lender. We then offer it with either points or a slightly higher rate to a consumer which allows the lender to pay us directly in a fee. "Par Plus" pricing means that there is a base rate - Par. Par does not offer a fee to a broker. Par Plus means that there is some rate change above Par to come up with our fees. Par Minus means that the consumer is buying the rate down below Par which means it "costs" the broker money so the Broker must charge for those points and their fees.
Retail is a bank or lender's website or office. Typically their rates prove to be higher because they have overhead and salaries to pay to their Loan Originators. Note Ditech commercials - 5.5% and a 5.804% APR. The difference in the APR and the rate show the fees that the retail bank is charging to a borrower. In the case of a $300,000 loan, 0.304% higher on the APR can prove to be over $20K in fees!!
Many people feel "Trust" in their local banker. They're paid a salary so they're not hungry and greedy. Which is not true. They are salary plus commission and typically that means that they are hungrier.
Also, look at the facts... In today's world of Foreclosures and Short Sales, more Foreclosures are registered with borrowers who originated with Banks or Retail Lenders than with Brokers who are trained to prequalify a client and also understand underwriting guidelines.
As I have a license, I am liable for messing up.
* If I lie about a borrower's income, I can go to jail.
* If I qualify a client that should not get a loan and they foreclose within 6 months, I have to buy the loan back from the lender.
* If I do something unethical, I can lose my license which means I have no livelihood.
I have the State monitoring my activities closely.
If I worked for a bank... and I screwed up, what's going to happen? If I screwed up big time, I might get fired but wouldn't I be working next door if I knew what was coming? Typically, the bank eats the loss as the error could happen anywhere.... and they happen constantly.
A Broker offers "wholesale direct" prices AND looks out for the borrower's best financial interest NOW and in the Future. A Bank or Direct Lender looks after their own best interest.
2)Your last answer sums up what you should have said about the QuitClaim... talk to an Attorney.
I believe though that the reader may be confused as to a Quitclaim and an Assumption of Mortgage. There was a long period of time when loans could be assumed followed by a period of no assumptions. Typically when rates drop very low, banks will not allow assumptions because they want the higher rate in the future.
VA loans typically offer an assumption but it will effect the VA Eligibility of the Original Borrower until the loan is paid off. So it is not in the best interest of the Borrower.
Also, in an assumption most of the time the Mortgage is rewritten but not the Note. The Note is the IOU to the bank. If the 2nd party defaults, the bank still has the note to fall back on which implicates the 1st party as well.
If you are talking about a Quitclaim for someone that is in trouble and short selling their house... I have dealt with this. If you get the deed quitclaimed over without getting cooperation from the owner and a short sale package from the bank FIRST, then you can be included in the foreclosure on the property! Never take possession of someone else's problems without taking appropriate measures to avoid those problems.
If you are quitclaiming within a family, to add someone to the property, typically the lender won't care but remember that the new partial owner will lose the property if the bank takes it away.
If you are quitclaiming and you are not "arms length" and the first party is leaving the situation altogether, then you definitely must refinance the property with the Lender.
Many attorneys will question the use of the QuitClaim which can be tricky in a chain of title and request that you just go through a purchase contract. You may pay transfer taxes but you clear up any clouds on title with title insurance.
Submitted by David Podgursky on May 1, 2008 - 6:34am.
1) Mortgage Broker vs Bank was the question asked Ilyce.
a) In some states there is no difference because many states enforce licensure so the Mortgage Broker is a licensed party - either a company like in New York - or an individual as in Florida and many other states. A loan originator that gets licensed by the state but does not work directly for a bank is a Broker - a 3rd party who originates loans for consumers.
The BIGGEST difference is NOT as you suggest... the difference that makes the most difference for the consumer (especially in Florida) is that the Licensed Individual is a Fiduciary Agent of the CONSUMER. A Bank employee is a Fiduciary Agent of the Shareholders in the Bank!
Licensure also implies education. Brokers must undergo training via State mandate for pre-licensure as well as continuing education. Bank employees are often only Loan Application takers with no formal training in Credit, Income and Assets. They plug numbers into the bank's computer and read what it spits out.
b) Wholesale vs Retail.. a Broker "buys a loan" at a wholesale rate from a Bank or a Lender. We then offer it with either points or a slightly higher rate to a consumer which allows the lender to pay us directly in a fee. "Par Plus" pricing means that there is a base rate - Par. Par does not offer a fee to a broker. Par Plus means that there is some rate change above Par to come up with our fees. Par Minus means that the consumer is buying the rate down below Par which means it "costs" the broker money so the Broker must charge for those points and their fees.
Retail is a bank or lender's website or office. Typically their rates prove to be higher because they have overhead and salaries to pay to their Loan Originators. Note Ditech commercials - 5.5% and a 5.804% APR. The difference in the APR and the rate show the fees that the retail bank is charging to a borrower. In the case of a $300,000 loan, 0.304% higher on the APR can prove to be over $20K in fees!!
Many people feel "Trust" in their local banker. They're paid a salary so they're not hungry and greedy. Which is not true. They are salary plus commission and typically that means that they are hungrier.
Also, look at the facts... In today's world of Foreclosures and Short Sales, more Foreclosures are registered with borrowers who originated with Banks or Retail Lenders than with Brokers who are trained to prequalify a client and also understand underwriting guidelines.
As I have a license, I am liable for messing up.
* If I lie about a borrower's income, I can go to jail.
* If I qualify a client that should not get a loan and they foreclose within 6 months, I have to buy the loan back from the lender.
* If I do something unethical, I can lose my license which means I have no livelihood.
I have the State monitoring my activities closely.
If I worked for a bank... and I screwed up, what's going to happen? If I screwed up big time, I might get fired but wouldn't I be working next door if I knew what was coming? Typically, the bank eats the loss as the error could happen anywhere.... and they happen constantly.
A Broker offers "wholesale direct" prices AND looks out for the borrower's best financial interest NOW and in the Future. A Bank or Direct Lender looks after their own best interest.
2)Your last answer sums up what you should have said about the QuitClaim... talk to an Attorney.
I believe though that the reader may be confused as to a Quitclaim and an Assumption of Mortgage. There was a long period of time when loans could be assumed followed by a period of no assumptions. Typically when rates drop very low, banks will not allow assumptions because they want the higher rate in the future.
VA loans typically offer an assumption but it will effect the VA Eligibility of the Original Borrower until the loan is paid off. So it is not in the best interest of the Borrower.
Also, in an assumption most of the time the Mortgage is rewritten but not the Note. The Note is the IOU to the bank. If the 2nd party defaults, the bank still has the note to fall back on which implicates the 1st party as well.
If you are talking about a Quitclaim for someone that is in trouble and short selling their house... I have dealt with this. If you get the deed quitclaimed over without getting cooperation from the owner and a short sale package from the bank FIRST, then you can be included in the foreclosure on the property! Never take possession of someone else's problems without taking appropriate measures to avoid those problems.
If you are quitclaiming within a family, to add someone to the property, typically the lender won't care but remember that the new partial owner will lose the property if the bank takes it away.
If you are quitclaiming and you are not "arms length" and the first party is leaving the situation altogether, then you definitely must refinance the property with the Lender.
Many attorneys will question the use of the QuitClaim which can be tricky in a chain of title and request that you just go through a purchase contract. You may pay transfer taxes but you clear up any clouds on title with title insurance.
www.themortgagegotoguy.com
Submitted by David Podgursky on May 1, 2008 - 6:49am.
www.themortgagegotoguy.com
Follow up...Bankers do NOT service their loans. The bank's servicing department does. The person that you see in a branch has nothing to do with the other department. Don't fall for this.
the person in the bank is a loan officer. They have their files processed by loan processors... who pass on to loan underwriters who call the processors to get more information from you directly. then the loan underwriter finishes the file and sends it to the loan closer who contacts you. Once you close, the lender can either service it themselves - which is called portfolio lending as they keep it in their "loan portfolio" or sell it to the secondary market which is typical. Selling to the secondary market earns the bank SRP - a fee just like the broker makes!! SRP is often higher than YSP that a broker makes AND they've already charged their own fees on top of it!
Also - disclosure. The Florida Association of Mortgage Broker released a message from their president today regarding banks vs brokers that you should read...
Basically, Banks and Brokers are required to disclose YSP and SRP at loan locking now. Brokers must disclose more information so it looks like they're more complicated. The problem is that Banks can still hide behind processes and untrained staff to hide fees until closing whereas Brokers cannot.
http://www.famb.org/gaup/FAMB%20Comment%20Letter%20to%20FED.pdf that is a nice letter
I'll post his most recent comments when they're released on the website