Mortgage Loan Broker

A wise investor will hire a mortgage loan broker to find the most competitive loan rates and terms available before he purchases his new home. Originally, banks offered their own financial lending products, but as the lending industry got more competitive using a third party arbitrator or negotiator got to be more popular in countries like the United States, the United Kingdom and New Zealand. Now these types of liaisons are a major distributor of lending products to both individuals and businesses.

The scope and capabilities of a mortgage loan broker depends a lot on the state and country regulatory statutes. There are still laws that lending professionals have to comply with, similar to the regulations overseeing banks and credit unions. First and foremost, lending brokers are business people who need to make a profit. They perform extensive marketing campaigns trying to locate and attract new clients. A brokerage professional will assess the new client's capability of obtaining and paying the house loan payments. This will involve running the client's credit report and reviewing their monthly expenses and debt to determine her eligibility for a line of credit and ability to pay the monthly payments. The lending professional then searches the market to find the lending tool most suitable to his client's needs. Once the appropriate lender is located, the mortgage loan broker will then apply, on his client's behalf, for preapproval of the lien. After filing that, the mortgage brokerage professional will gather all needed information from the client; like: pay stubs, utility bills, credit card statements and bank statements.

In the United States, a mortgage loan broker does business under 10 federal laws and 5 federal agencies. These laws and agencies make sure that there are fair business practices within the industry. They also protect consumers against predatory brokerage practices. Predatory practices discouraged by these laws and agencies include: inflating the appraisal amount of the house, encouraging a financing option that does not benefit the borrower or somehow profiting from a consumer's lack of knowledge of the lending industry. These agencies make sure that the brokerage industry does not lead the consumer's astray, just to make the profit from the fees or interest rates. These guidelines insure that the brokerage professionals are always working for the borrowers' best interests.

There are a few differences between a mortgage loan broker and a loan officer working at a standard lending institution. These differences translate into benefits to the prospective borrower. A lending professional generally works directly for a lending institution. As a result, she will always promote the lending tools of that particular institution, even if another lending institution has a tool better suited for that specific client. On the other hand, a brokerage professional is a go between, connecting a borrower with the appropriate lender for her specific needs. A brokerage professional is privately licensed through the state in which he conducts business. A lending professional, on the other hand is covered under the umbrella of the institution's business lending license. As a result, the brokerage professional is held personally responsible for fraud or predatory activity.

Therefore, a lending professional does not have a personal reason to avoid predatory lending practices, outside of losing a job. However, a mortgage loan broker could lose his license, be fined and even go to jail if he engages in predatory tactics to close the loan. This is not to say that lending professionals are somehow dishonest or not held accountable. It is to merely show that though brokers work outside of the standard lending industry, they are still held responsible for making professional, honest decisions. Brokerage professionals typically make more profit from each transaction, but a lending professional from a financial institution has access to more clients, so can make more loans.

A standard lender can also access the secondary market, as a mortgage loan broker cannot. This means that a banker can temporarily offer a short term loan (warehouse lending) to a borrower, and then can sell the entire mortgage to an investor on Wall Street. At the time of sale, the bank repays their own lending institution and still retains a profit. Banks sell these loans in bundles, so that they are not financially hindered by smaller or riskier loans. Because a broker does not have this capability, they often have to be pickier in their choice of lenders. Another difference is that brokers have to disclose the yield spread premium, and bankers do not. For the average borrower, this is often hard to decipher, as the brokerage professional's paperwork might give the impression that the mortgage is costing more, when really the broker is simply disclosing more about the fees than the bank.

This is not to insinuate that a mortgage loan broker is more honest than a lending professional, as the disclosure only comes by compulsion of the federal government. "Let integrity and uprightness preserve me; for I wait on thee." (Psalm 25:21) Brokerage professionals are working hard with congress to get the disclosure laws universalized across the industries to make a fairer playing field. With all the guidelines and federal regulatory systems in place, a potential borrower would be well served to shop around for a good brokerage professional. With the ample information available, a consumer can choose to employ a brokerage professional to search for the best lending tool, or could feel free to investigate for herself. Either way, the federal government has rules in place to protect the customer, regardless of their choice for a lending or brokerage professional to assist in their home purchase.

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