Obtaining a Mortgage: Mortgage Broker Text Size:

Mortgage brokers perform an important function in the real estate market. They act as intermediaries, bringing borrowers and lenders together. A mortgage broker offers the loan products of various lenders, while a lender provides the actual loan money to the borrower. A broker can work within a firm or independently.

Mortgage Broker Assists Borrowers in Finding Mortgage Loans

A mortgage broker doesn't loan money. Instead, he or she works with borrowers, assisting them in finding appropriately matched mortgage loans. Typically, a mortgage broker will learn the needs of the borrower and do the work of shopping for the best loan deal from various lenders. Brokers usually work with numerous lenders, attempting to match the right lender with each individual client. Because they have so many lenders from which to choose, brokers are more likely than individual lenders to find loans for borrowers with special needs.

Mortgage brokers accept applications from borrowers and seek to lock in rates and terms with lenders. They provide required state and federal disclosures. Also, brokers gather all necessary documents including credit reports, employment verifications, asset disclosures and property appraisals. Once an application file is complete, the mortgage broker submits it to the appropriate lender, who then handles loan approval and disbursement.

Assistance Ends When Loan Process Complete

The mortgage broker only offers assistance before the loan process is complete. Once the borrower has obtained a mortgage, the broker's job is finished and questions from the borrower should be directed to the lender.

Licensing

As of March 1, 2009, all 50 states and the District of Columbia will regulate the conduct of mortgage brokers, or require their licensing or registration, or both. A majority of states now require mortgage brokers to be licensed in order to be compensated as such. In those states, unlicensed mortgage brokers will be barred from being paid their agreed-upon commissions. Some states even make it a criminal offense for anyone to compensate an unlicensed broker for performing acts for which a license is required. In most states a licensed real estate broker may not receive a fee for acting as or for a mortgage broker without a separate mortgage broker's license.

Compensation

Mortgage brokers earn commissions in exchange for bringing borrowers and lenders together. They generally receive their fee or commission for services from the borrower when the loan is closed, and they may also receive fees from the lender. Usually, the broker's commission is paid indirectly by the buyer in the form of closing costs or additional loan points.

Generally, a mortgage broker is entitled to commission when it produces a lender who is ready, willing and able to make a loan on the borrower's terms. This rule is subject to qualification because the parties may make a different agreement. Ultimately, it is the brokerage agreement itself which will determine what the mortgage broker must do to earn its commission. A borrower is entitled to reject a proposed loan commitment which differs from the terms contemplated by the brokerage agreement without incurring liability for the mortgage broker's commission.

Contract Requirement

Most states require an employment contract, either express or implied, before a mortgage broker can claim compensation. Many states require that the agreement between the parties be written in order for a mortgage broker to be compensated by a borrower.

One who volunteers his or her services as a mortgage broker but who obtains no authorization to act in that capacity is not entitled to compensation for his or her efforts. This is so, even when there has been a prior brokerage agreement between the parties but the agreement has terminated.

Borrower's Duties

The borrower owes a duty to the mortgage broker not to prevent the broker's performance of the terms of the brokerage contract or the occurrence of any preconditions to the broker's right to compensation. For example, the borrower may not usually avoid the obligation to compensate the broker by wrongfully revoking the broker's authority, by failing to file a timely loan application, by taking out other loans against the property so as to prevent performance by the broker or by engaging in secret direct dealings with the lender that was found by the broker.

Mortgage Broker's Duties

In some states, laws require the mortgage broker to function as an agent of the borrower, therefore owing to the borrower certain fiduciary duties, such as the duties of loyalty, good faith, fair dealing, full disclosure of all material facts and avoidance of self-dealing in the subject matter of the agency relationship.

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