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Mortgage Brokers and Loans

Posted by  on Apr 16, 2009
 
Some mortgage brokers process loans and close loans in their own names, but at the time of settlement, they transfer these loans to lenders that simultaneously advance funds for the loans. This transaction is known in the lending industry as table funding. In table-funded transactions, the mortgage broker does not furnish the capital for the loans. Instead the lender provides the capital and, immediately after the loan is consummated, the mortgage broker delivers the loan package to that lender, including the promissory note, mortgage, evidence of insurance, and assignments of all rights the mortgage broker held.

In some situations, mortgage brokers originate loans that are closed in the mortgage brokers names, fund the loans temporarily using their own funds or a warehouse line of credit, and sell the loans after closing. There are other mortgage brokers that are just intermediaries between borrowers and lending sources. They originate loans by providing loan processing and arranging for the provision of funds by lenders. The loans are closed in the names of the funding lenders.

Some mortgage brokers represent the borrower. Mortgage brokers may fill one role in one transaction and a different role in another. They tend to have an agency relationship with the borrower. This type of mortgage broker does not receive fees from any source other than the consumer, and a mortgage broker that does receive fees from a source other than the consumer, namely, the lender. An agency relationship may arise under State law or may be created by agreement between the mortgage broker and borrower. Although State law is largely undeveloped in this area, in some States mortgage brokers may be found to have a fiduciary responsibility to the borrower even in the absence of a contract provision.

Another kind of mortgage broker makes mortgage loans available to borrowers either from one or a number of sources of funds with which the mortgage broker has a business relationship. This type of mortgage broker is not the borrower's agent; rather, brokers of this type present themselves as entities that try to sell borrowers mortgage loans as would other mortgage loan providers in the market.

If this type of mortgage broker only makes mortgage loans available from one source of funds, the mortgage broker may or may not be functioning as the lender's agent. Compensation for the services of mortgage brokers frequently comes from fees paid by the borrower. Compensation may or may not also come from indirect fees paid by the lender providing the mortgage loan funds.

If the borrower pays lower fees and points and agrees to a higher interest rate, then the lender will pay the mortgage broker a fee that reflects the higher interest payments the lender will receive from the borrower. In other words, indirect fees paid by lenders to mortgage brokers are largely based on the interest rate of the loan entered into by the borrower and the amount of points and direct fees paid by the borrower.

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