How to know when to use a mortgage broker
September 30, 2009 · Tagged with Loans
It’s a bad time to be an honest mortgage broker.
In recent months, some of the biggest companies in real estate have decided to stop working with brokers. Chase won’t lend to brokers’ clients anymore. The PMI Group, one of the biggest companies in the mortgage insurance business, flat out refuses to underwrite any policies on loans that started with a broker.
Meanwhile, a bill is moving through Congress that would ban a common practice from a few years ago, where brokers earned more money by putting clients in loans that were potentially damaging. The legislators’ ire is tarring even those brokers who never engaged in such shenanigans.
All of this is happening just as borrowers need plenty of guidance. Mortgage rates are low, fueling demand for refinancing. But banks’ loan rules seem to change by the day, and many banks don’t have the staff to handle the volume.
So if you’re hoping to refinance or looking to snap up a bargain home in the next year or so, you’re faced with a tricky question. Given the number of institutions that want nothing to do with mortgage brokers, shouldn’t you stay far away from them as well?
The alternative, alas, may not be so great either. “If you want to get ripped off, go to a broker, and if you want incompetency, go to a bank,” said Mike Stoffer, a mortgage broker himself with Stoffer Mortgage in North Canton, Ohio, who admitted to occasional shame when he tells people what he does all day.
Mr. Stoffer tosses off that comment with a slight chuckle. But his brave and brutal honesty suggests the real possibility of getting a raw deal from brokers when you don’t understand where their loyalties lie.
Mortgage brokers work for themselves, not for you. They do not provide a personal shopping service and may compare only a handful of lenders on your behalf. If you want to be sure you’re getting the best rate and the lowest costs, the only way to come close to succeeding is to hunt extensively on your own.
We’ll get to that below, but first a brief interlude to explain why there is so much hate (and self-hate) in the industry. Take Chase, for instance. The bank is ostracizing mortgage brokers because it wants the most suitable loan applicants. In the past, the bank argues, more loans from brokers ended up troubled than other mortgages.
Nonsense, say the brokers, who say they believe that banks simply want to cut costs and reduce competition. “Over the last 12 to 15 years, we’ve held the majority of the market share in residential mortgages,” said Marc Savitt, president of The Mortgage Center, a mortgage broker in Martinsburg, W.Va., and the president of the National Association of Mortgage Brokers. “That happens because we give our customers good service and good rates. Otherwise, consumers wouldn’t be using us.”