Mortgage Broker - A Smarter Choice for Consumers

Author: Rob K. Blake | Date: January 15, 2008 | Filed In: Mortgage Brokers

The right mortgage broker is the home loan consumer’s best choice. A mortgage broker locates and procures the funds through multiple relationships with money sources. This wider reach into the market is one of many reasons a broker is a better choice.

Mortgage brokers can originate your loan but rely on wholesale lenders to provide the money to fund your loan. They go through a screening process to become an approved broker with a number of wholesale lenders. Some mortgage lenders are very picky and some let just about anyone in.

In the best light, you can think of the mortgage broker as an educated “personal shopper” who counsels you through the process ending in the right “purchase”.

More often, the broker is seen as a “middle-man”. You need money for a loan and the wholesale lender has money for your loan. The broker puts the two of you together. For that, they get paid.

How Do Mortgage Brokers get paid?

They can charge you origination fee at closing . They also make money off increasing the rate.

How does that work?

In a nutshell, the wholesale lender produces a rate they know will make them money when they sell your loan to the final investor. That would be what’s called a par rate. It’s got the profit for the wholesale lender already built in.

If the broker delivers a loan to them at a rate higher rate than par, the wholesale lender will reward the broker for doing so. The wholesale lender will make more money from the final investor on a loan with a higher rate so they can throw the broker a bone at closing.

It is called yield spread premium

Only a broker has to disclose the extra yield spread premium they make on your loan. Most of the time, it is about 1.5%-2% extra above what they already charged you with the origination fee or mortgage broker fee. That means 2% of your loan amount was given to the broker for increasing your rate over par. Your rate is usually .500% higher than it needs to be…a half a point higher than par.

Now don’t get all crazy. The banks do this too they just don’t have to disclose it to you. Everyone has their markup over the par rate…unless you negotiate it away.

You have no chance negotiating away rate bumps that create yield spread premium with a bank, only a broker. Since most mortgage broker operations are usually a one man or two man operation, make sure you only deal with an owner. And let him know, you understand all about “YSP”…and won’t tolerate it on your loan.

Unlike banks, these guys know they have to disclose it, so you can hold their feet to fire. Also local, ethical mortgage brokers value long term relationships built on trust. They want educated clients that talk their language. Find one of these brokers and you’ll always get the best deals.

Let’s recap why a broker is the smart choice!

They don’t provide the money so they can shop around on your behalf.

They MUST disclose the yield spread premium giving you the opportunity to catch any rate bumps.

They are usually smaller companies in your local community cherishing personal long-term relationships.

They don’t have stockholders expecting high returns or national ad campaigns to pay for.

Therefore, the right broker is your best bet to get the best rate and mortgage every day and twice on Sunday!

Finding the right mortgage broker requires understanding who they are, how to find them, and what to say to insure you always get the best deal. That’s why we wrote The Mortgage Advantage, check it out.

Good Luck!

Author: Rob K. Blake