A mortgage broker acts as an intermediary who brokers a mortgage loan on behalf of an individual or a business.
Traditionally, banks and other borrowing institutions have sold their own products. Since the market for mortgages has become more competitive, however, the role of mortgage brokers has become more popular. In many of the currently developed mortgage markets (mainly in Canada, the United States, Britain, Australia, New Zealand and Spain), mortgage brokers are the largest sellers of mortgage products for lenders.
Mortgage brokers are there to find banks or direct lenders who will be willing to make certain loans sought by individuals. The mortgage broker in Canada is paid by the lender and does not charge for a good credit application.
Many mortgage brokers are set up to ensure compliance with banking and finance laws in consumer jurisdictions. The level of regulation depends on the jurisdiction. Only one state in the United States has no laws governing mortgage lending.
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Banking activities can be divided into the following:
- Retail banking: deals directly with individuals and small businesses
- Business banking: provides services for middle-class businesses
- Corporate banking: is directed to large business entities
- Land mortgage banking: specializes in starting and/or serving mortgage loans land
- Private banking: provides wealth management services to high-value individuals and families
- Investment banking: related to activity in financial markets
Most banks generate profits, private companies, but some are owned by the government, or not-for-profit. The central bank is usually a government-owned bank, which is often charged with quasi-regulatory responsibilities, eg. oversee commercial banks, or control the cash interest rate. The central bank in general provides liquidity to the banking system and acts as a lender of last resort in the event of a crisis.
The nature and scope of the activities of mortgage brokers varies with jurisdiction. For example, anyone offering mortgage brokers in the UK offers regulated financial activities; the broker is responsible for ensuring appropriate advice to the circumstances of the borrower and financially responsible if the suggestion then proves to be defective. In other jurisdictions, transactions conducted by the broker may be limited to sales work: appointing the borrower in the direction of the appropriate lender, without any advice given, and with commissions collected for sale.
The work done by the broker will depend on the depth of service and liabilities of the broker.
Usually the following tasks are performed:
- marketing to attract clients
- assessments of borrower circumstances (Mortgage facts find interview forms) - this may include an assessment of credit history (usually obtained via credit report) and affordability (verified by income documentation)
- assessing the market for finding a mortgage product that suits the client's needs. (Mortgage presentation/recommendation)
- applying for a lender agreement in principle (pre-approval)
- collect all necessary documents (paystubs/paychecks, bank statements, etc.)
- fill out the lender's application form
- describes legal disclosure
- send all material to creditor
- uphold their obligations by saving their clients as much money as possible by offering the best advice to client situations
Maps Mortgage broker
Mortgage brokers in the United States
According to a 2004 study by Wholesale Access Mortgage Research & amp; Consulting, Inc., there are about 53,000 mortgage brokers employing about 418,700 employees and that's 68% of all housing loans in the United States. Moreover, 32% of the loans are made in retail through the retail channel of the lender, which means the lender does not go through brokers.
The mortgage brokerage industry is governed by 10 federal laws, 5 federal enforcement agencies and 49 state or licensing laws.
Banks have used brokers to outsource job searching and qualifying for borrowers, and to partially disburse responsibility for fraud and seizure to originators through legal agreements.
During the loan origination process, the broker collects and processes documents related to mortgaging real estate.
Difference between mortgage broker and loan officer
A mortgage broker works as a channel between buyers (borrowers) and lenders (banks and non-bank lenders), whereas loan officers usually work directly for lenders. Many countries require mortgage brokers to be licensed. The state regulates lending and licensing practices, and regulations vary from state to state. Most states require licenses for people who want to become "Associate Brokers", "Business Brokers", and "Direct Lenders".
A mortgage broker is usually registered with the state, and is personally liable (punished by retraction or imprisonment) for fraud during the loan term. A loan officer works under an umbrella license of an institution, usually a bank or a lender directly. Both positions have legal, moral, and professional responsibilities and obligations to prevent fraud and to fully disclose loan terms to consumers and lenders. Mortgage brokers can call themselves "credit officers".
Mortgage brokers must also be licensed through the National Mortgage Licensing System and Registry (NMLS). The goal of NMLS is to improve and improve the supervision of the mortgage industry, create better communications from one state to another, and to create consistency in licensing requirements and automate the licensing process to the maximum extent possible. Loan officers working for a storage institution are required to be registered with NMLS, but are not licensed.
Typically, mortgage brokers will make more money per loan than credit officers, but loan officers can use the available referral network from lending institutions to sell more loans. There are mortgage brokers and loan officers at all levels of experience.
Industry competitiveness
A large segment of the commission-based mortgage finance industry. Potential clients can compare the terms of a lender's loan to another person through an advertisement or internet quote.
In the 1970s, mortgage brokers did not have access to wholesale markets, unlike traditional bankers. Today, mortgage brokers are more competitive with their access to the wholesale capital markets and price discounts. A mortgage broker has a lower overhead cost than a large and expensive banking operation because of its small structure. They can lower rates instantly to compete for clients. Larger companies are less competitive because they provide their sales representatives of their fixed rate sheets. Loan officers often can not reduce their company's profit margins and may be higher or lower than the market, depending on the manager's decision. Thus, mortgage brokers have gained between 60 and 70% of the market.
Mortgage brokers can get loan approval from the largest wholesale secondary market lender in the country. For example, Fannie Mae can issue loan approval to clients through her mortgage brokers, who can then be assigned to one of a number of mortgage bankers on the approved list. Brokers will often compare prices for that day. The broker will then assign the loan to a designated licensed lender based on the price and their closing speed. The lender can close the loan and serve the loan. They can finance it permanently or temporarily with a line of credit warehouse before selling it to a larger lending pool.
The difference between "Brokers" and "Bankers" is the ability of bankers to use short-term credit lines (known as warehouse lines) to fund loans until they can sell loans to the secondary market. Then they pay their warehouse lenders, and make a profit on the sale of the loan. Borrowers will often get a notification letter that their lender has sold or transferred the loan. Bankers who sell most of their loans and do not actually serve them in some of the jurisdictions required to notify clients in writing. For example, New York State regulations require non-servicing "bankers" to disclose the percentage of loans actually financed and serviced versus those sold/brokered.
The broker must also disclose the premium spread spread while the Banker does not. This has created an ambiguous and difficult identification of the true cost of getting a mortgage. The government created a new Good Faith Estimate (version 2010) to allow consumers to compare apples to apples at all costs associated with mortgages whether you are shopping for a mortgage broker or a direct lender. The government's reason for this is that some mortgage brokers use bait and switch tactics to quote one level and charge only to change before loan documents are made. While it is ambiguous for a mortgage broker to disclose this, they decide what to pay in advance while direct lenders will not know what they are making entirely until the loan is sold.
Also See: Lending & amp; Mortgage fraud
Sometimes they will sell the loan, but continue to serve the loan. At other times, the lender will retain ownership and sell the right to service the loan to an outside mortgage service bureau. Many lenders follow the "come to sell" business model, where almost all of the loans they generate are sold in the secondary market. The lender gets a fee on closing, and Service Release Premium, or SRP. The amount of SRP is directly related to the terms of the loan. In general, the less favorable the terms of the loan to the borrower, the more SRP earned. Loan officers of lenders often get financial incentives to sell loans at a higher price to earn higher commissions.
Secondary market effect
Even large companies with lending licenses sell, or brokers, their mortgage loan deals come and close. The percentage is smaller than the services of bankers and retain their loans compared to those in recent decades. The bank acts as a broker because of the increasing size of the loan because only a few can use depositors' money on mortgage loans. A depositor may ask for their money back and the lender will need large reserves to return the money on demand. Mortgage bankers do not take deposits and do not find it practical to provide loans without the wholesalers in place to buy them. The cash required a mortgage banker for only $ 500,000 in New York. The rest may be in the form of a property asset (additional $ 2.00), an additional credit limit from another source (an additional $ 10,000,000). That amount is enough to make just two average home loan rates. Therefore, mortgage lending depends on the secondary market, which includes securitization on Wall Street and other large funds.
The largest secondary market or "wholesale" agency is the Federal National Mortgage Association, and the Federal Home Loan Mortgage Corporation, commonly referred to as Fannie Mae and Freddie Mac, respectively. Loans must adhere to their standard application form guidelines so that they can qualify for sale to servicers or larger loan investors. These larger investors can then sell it to Fannie Mae or Freddie Mac to refill the warehouse. The goal is to bundle loan portfolios according to the secondary market to maintain the ability to sell loans for capital. If interest rates fall and the portfolio has higher average interest rates, bankers can sell loans with higher returns on the basis of current market exchange rates. Some large lenders will hold back their loans until such benefits are possible.
The sale of mortgage loans in the wholesale or secondary market is more common. They provide permanent capital to the borrower. "Direct lender" can lend directly to the borrower, but can have pre-sale loan before closing.
Some creditors are comprehensive or "portfolio lenders". That is, some close, save, and serve mortgage loans. This term is known as a portfolio loan, indicating that a loan has been made from funds on deposit or trust. Such types of direct loans are rare, and have declined in usage. An example of a portfolio lender in the US is ING Direct.
Consumer law improvements
The law has improved and benefited consumers. A mortgage broker must comply with the standards established by law to impose fees on the borrower. The fee must meet an additional threshold, that the combined tariff and fees should not exceed a lower percentage, without being considered "High Cost Mortgage". Excess will trigger additional disclosure and risk warning to the borrower. Next, the mortgage broker should be more in line with the regulator. The cost may be lower due to this rule.
Mortgage bankers and banks are not subject to these cost reduction measures. Because loan sales generate the majority of the lender's fees, the total service in most cases exceeds the high cost action. While mortgage brokers now have to reduce their costs, licensed lenders are not affected by the second part of cost generation. This is due to the delay of selling service until after closing. Therefore, this is considered a secondary market transaction and is not subject to the same rules.
Client broker and interests
In 2007, in the United States federal law and most state laws did not assign fiduciary obligations to mortgage brokers to act in the best interests of their customers. The exception was California, where in 1979 the Supreme Court of California ruled the fiduciary duty of a mortgage broker. This means that consumers, in countries other than California, may incur excessive rates and fees and are encouraged to shop before any agreement.
Predatory mortgage lending and mortgage fraud
Mortgage scams are when one or more individuals cheat financial institutions by sending false information on purpose. Some mortgage brokers have been involved in mortgage scams according to the FBI.
Fake mortgage lending is when a dishonest financial institution deliberately misleads or deceives the consumer. Several mortgage consultants, processors and mortgage company executives have been involved in lending predators.
Some of the predatory borrowing signs include:
- Falsify revenue/assets and other documentation.
- Not disclosing premium spread spreads or other hidden costs BEFORE completion/closing.
- Failed to provide all RESPA documentation, ie Good Faith Estimate, Special Information Book, Truth in Lending, etc. so the borrower can clearly understand the mortgage terms and lending policies.
- Convince the borrower to refinance the loan without any benefit.
- Affects higher Loan Amounts and upgraded assessments (usually simultaneously with the assessor).
- Unfairly exploit the borrower's relative ignorance about mortgage acquisitions.
Another unethical practice involves putting a hidden clause in a contract in which the borrower will unwittingly promise to pay the broker or lender to find her mortgage whether or not the mortgage is closed. Although considered unethical by the National Association of Mortgage Brokers, this practice is legal in most states. Often dishonest lenders will reassure consumers that he signed the app and nothing else. Often consumers will not hear again from the lender until after the time expires and then they are forced to pay all costs. The potential borrower can even be sued without legal defense.
Mortgage broker in Canada
The laws governing mortgage brokers in Canada are determined by the provincial government. Most provinces require mortgage brokers to carry provincial licenses.
Nova Scotia
Mortgage Brokers in Nova Scotia are licensed by the Nova Scotia Service and governed by the Brokerage and Mortgage Lending Regulations. Many brokers in Nova Scotia are members of the Atlantic Mortgage Brokerage Association. More information about the various mortgage programs available to consumers can be found in the Mortgage Manager.
Ontario
In Ontario, the mortgage broker is licensed by the Ontario Financial Services Commission (FSCO), an armament of the Ministry of Finance. To be licensed, a person must meet the requirements of a special license, including through an approved course. Courses are offered by the Real Estate and Mortgage Institute of Canada Inc. (REMIC) and the Accredited Mortgage Professional Association (CAAMP). CAAMP provides Canadian KPR professionals with the designation of Accredited Mortgage Professional (AMP) - a national appointment for professionals in Canada's mortgage industry.
British Columbia
In the British Columbia mortgage broker is licensed by the Financial Institutions Commission (FICOM)
Default Insurance
Across Canada, high-risk loans are insured by Canada Mortgage and Housing Corporation, Genworth Financial or Canada Guaranty.
Online Mortgage Loan in Canada
By 2017, Canada has seen a step toward mobile and online technology in the mortgage industry. CIBC has created a mobile app that is currently in beta testing. The company incorporates digital technology with a strong purpose towards consumer awareness of bank products.
Mortgage brokers in the United Kingdom
Mortgage brokers in the UK are divided between regulated mortgage markets, which lend to private individuals, and unregulated mortgage markets, which lend to businesses and investors. Many British brokers mediate both types of businesses.
The role of mortgage brokers is to mediate business between clients and lending institutions, which include banks, building societies and credit unions.
Types of mortgage brokers
Tied or multi-bound
Controlled mortgage brokers offer products from single lenders, while multi-bonded brokers offer products from a small panel of lenders. Many brokers are tied to real agents and will refer agency customers to one of a handful of lenders in return for a commission. Mortgage specialists in banks and building societies can also be regarded as 'bound' intermediaries, insofar as they only offer products sold by the lender.
Entire market
Since a number of mortgage lenders in the UK operate 'live only' services, traditional mortgage brokers are generally unable to offer an unlimited range of products. By 2015, the UK market is beginning to be distracted by Trussle's financial technology startup and by 2016, habito is also entering the market. Trussle and Habito offer the entire platform free of market.
In October 2017, hoocht entered the market by claiming to cut the online application process by up to 15 minutes using their new smart mortgage solution.
The Financial Conduct Authority (FCA) requires that the mortgage broker explain its range accurately to the consumer, and specify that one of the following disclosures is used to describe the service offered (as appropriate):
- "We are not limited to the range of mortgages we will consider for you."
- "We offer a comprehensive range of mortgages from across the market, but not transactions that you can only get by going directly to the lender."
- "We only offer mortgages from [number] we can give you this list."
- "We only offer mortgages from [name of lender]."
- "We offer only a portion, but not all, of the mortgage of the lender [number].We can give you this list."
- "We offer only a portion, but not all, of mortgages from [lender's name]."
- "We only sell bridging financing products from [name of lender] We do not offer products from the entire mortgage market."
How mortgage brokers make money
Some mortgage brokers charge a fee to their customers. The fees charged vary, but many consumer groups and advisory services suggest that costs are justified if the broker can speed up the application process and search for various mortgages to find a better deal.
Some brokers use a sliding rate scale to take into account the fact that some applications (eg those from customers with credit defects are historic) are more difficult to place - and therefore require more work - than others (eg 'likes-to-like' remortgages).
Another way of income for mortgage brokers is the commission, which they receive from the lender they introduce to the borrower. Some mortgage brokers make money from a mix of fees and commissions. This includes the cost of the work they do for the consumer (to find the appropriate product) and the lender (in the pre-qualified customer and application administration).
Mortgage settings
The owner-resident mortgage product, and by the extension broker of this product, is governed by the FCA. A regulated mortgage contract is defined in Mortgage and Home Finance: Business Code (MCOB) as one that:
- Involves credit terms for an individual or guardian;
- In respect of the first legal charge on the ground (excluding timeshare accommodation) of which at least 40% will be occupied by the borrower, trustee or trustee, or close relative of the individual; and
- Not a home purchase package
The Mortgage Credit Directive (MCD)
Mortgage brokers in the UK are also bound by European pan laws, such as the EU Mortgage Credit Direction. It is the role of British legislators to incorporate directives into existing UK frameworks.
The wider difference between consumers and businesses adopted in the MCD, in some ways, contradicts the current UK framework, and as a result some exceptions previously enjoyed in the UK will be removed. One example is where the borrower or the borrower's family will occupy less than 40% of the property, which is currently not considered a regulated business; by 2016, the borrower will be considered a consumer. This transaction will therefore be set.
The Mortgage Market Review (MMR)
The Mortgage Market Review (MMR), a comprehensive review of the UK mortgage market that runs from 2009 to 2012 and comes into effect on April 26, 2014, resulted in some dramatic changes to the regulated lending environment, most centered on tighter and newer affordability requirements and checks income and expenses. There is also anecdotal evidence showing that the amount of time it takes to get a mortgage has increased significantly as a result of the change. Some of the in-house underwriting mortgage brokers that match the borrowers to the appropriate lenders can avoid these delays, making their services more attractive.
It is speculated that, since borrower applications are tested on the strength of their ability to make monthly payments, more and more borrowers are opting for mortgage terms over traditional 25 years. This results in lower payments but higher overall interest charges, as well as longer repayment periods.
According to official figures from the Office for National Statistics (ONS), the percentage of mortgages under 25 years in length fell from 95% to 68% between 2002 and 2012.
Mortgage broker in Australia
Mortgage brokers have been active in Australia since the early 1980s, but they only became the dominant force in the mortgage industry during the late 1990s behind the aggressive marketing by Aussie Home Loans and Wizard Home Loan. About 35% of all loans secured by mortgages in Australia were introduced by mortgage brokers in 2008. In March 2012, MFAA sources suggested that the share of loans introduced by Mortgage Brokers has increased to 43%.
Mortgage brokers are now regulated by the Australian Securities and Investments Commission. The new national consumer credit protection legislation includes licensing regimes and responsible liability obligations. The mortgage broker must also be a member of an external dispute resolution provider such as the Restricted Credit Service (COSL) ombudsman. In addition, some lenders require accredited brokers to become members of industry bodies such as Mortgage & amp; Australian Financial Association (MFAA).
Cost
Australian and New Zealand mortgage brokers usually do not charge for their services because they are paid by the lender to introduce the loan. They are paid in advance a commission that averages 0.66% of the loan amount and ongoing trail commissions which averages 0.165% of the loan amount per year paid monthly. These commissions may vary significantly between different lenders and loan products, especially since the re-alignment commission introduced by Australian banks during June to August, 2008 in reaction to the Subprime mortgage crisis.
Although a mortgage broker is paid a commission by the lender, this does not change the final rate or fees paid by the customer as it may be in another country. Mortgage brokers do not have the ability to charge customers higher or lower rates and in return earn higher or lower commissions.
In the event that the loan is repaid by the borrower within 24 months of the completion of the loan, the mortgage broker is charged a "clawback" by the lender because the loan is considered "unprofitable". The amount is usually 0.66% of the loan amount for the repaid loan in the first 12 months and 0.33% for the repaid loan within the next 12 months. When this happens the mortgage broker can sometimes charge the subscriber amount if they hold the written authority to do this. Mortgage brokers do not like being responsible for costs, but in some cases it can not be recovered. Keep in mind that standard home loan in Australia is contracted for a period of 30 years, with an average loan term of about 4-5 years.
Mortgage brokers in Singapore
The mortgage brokerage industry is still new compared to the situation in the US and UK. Not all banks in Singapore are tied to a mortgage brokerage company. Mortgage brokers are mostly regulated by the Singapore Law Agency.
A study by Chan & amp; Partner Consulting Group (CPCG) shows that the mortgage brokerage industry is still a new concept for Singapore's financial consumers. But this will change as more and more consumers realize that taking out a housing loan with a mortgage broker does not increase the cost of the consumer at all, and can actually help them make more informed decisions.
Mortgage brokers in the country do not charge any fees to the borrower, but profit is made when the financial institution pays commission to the broker for the success of credit distribution through broker referrals.
See also
- Subprime mortgage crisis
- Credit sales
- Mortgage loan
- fixed rate mortgages
- Mortgages with adjusted interest rate
- VA loan
- FHA insures loan
References
External links
- US Department of Housing and Urban Development (US)
- National Association of Mortgage Brokers (USA)
- Canada Mortgage and Housing Corporation (CMHC)
- New Zealand Mortgage Brokers Association (NZ)
Source of the article : Wikipedia
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