See what your friendly neighborhood mortgage broker can do for you

Posted by  on Apr 16, 2009
A mortgage broker can be classified by one thing, whether they represent the borrower or not. These two types of mortgage brokers actually coexist together. They might represent the borrower in one transaction, but have different role in another.
The first type of mortgage broker, the one that represents the borrower, usually acts as the agency, and works directly with the borrower. This type of mortgage broker will either receive fees from the consumer, namely, the lender, or the mortgage broker will not receive fees from any other source than the consumer. In the former, the mortgage broker establishes an agency relationship, and has a promised duty with the borrower. An agency relationship arises under state law or could be created between the mortgage broker and the borrower. Although state law is largely undeveloped in this field, some states mortgage brokers could have a responsibility to the borrower even in the absence of a contract provision.

The second type of mortgage broker does not represent the borrower. in this case, the mortgage broker makes mortgages and loans available to the borrower 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, the broker present themselves as entities that try to sell the borrowers mortgage loans the same way that any mortgage loan provider would 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.

Some mortgage brokers process loans and close loans in their own name. This makes less hassle for the borrower. However, at the same time, they are transferring these loans to lenders that simultaneously advance the funds for the mortgage loan. This is known as “table funding”. In these particular transactions, the mortgage broker does not furnish the capital for the loans. Instead, the lender provides the capital.

Immediately after the loan is consummated, the mortgage broker delivers the loan package to that lender, including the promissory note, evidence of insurance, and assignments of all the rights the mortgage broker holds.

In some transactions, mortgage brokers originate loans that are closed in the mortgage broker’s name. They then fund the loans temporarily using their own funds or a warehouse line of credit, and then sell the loan after closing. These mortgage brokers function similarly to mortgage bankers, except they do not service loans.

Still, other mortgage brokers function solely as intermediaries between the borrowers and lending sources. They originate the loan by providing loan processing and arrange for the provision of funds by the lenders. In the end, the loans are closed in the names of the funding mortgage lenders.

Frequently, mortgage brokers offer payment options that enable the borrower to pay lower fees and points, or even no fees. Of course, this is in exchange for a higher interest rate, or higher fees for a lower interest rate. If the borrower pays lower fees for a mortgage and agrees to higher interest rates, then the lender will pay the mortgage broker a fee that reflects higher interest payments that the ender will receive from the borrower.

This is more commonly known as indirect fees that are paid by lenders to mortgage brokers, which are largely based on the amount of interest rate of the loan.

What tends to happen daily is a lender will set prices they are willing to pay to mortgage brokers for loans delivered to them. These prices are based on the interest rates of the loans arranged by the mortgage broker and the fees for the loan as compared to the price that the lender would have purchased the loan for that day.


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