With the FBI investigating some lending institutions and mortgage brokers, it becomes clear that most brokers do not represent anyones interests but their own. Mortgage brokers are regulated by state agencies but are not under any compulsion to get the buyer the best or safest deal. Brokers make money by closing deals for lenders or banks and then taking a commission or fees off the value of the loan from the lender. You may not realize that you are paying the broker, but they are getting paid. Some are getting paid by the borrower and the lender is paying others. In some cases, it was even shown that mortgage brokers might end up getting paid more if they steered clients to mortgage loans that had high prepayment penalties, making it difficult for the borrower to refinance later.
What a Broker Should Do
Mortgage brokers should assess your financial capabilities and try to find a market product that suits your present situation. The problem comes in when they are steering you to products that are risky. You also need to do your own homework in deciding whether any product offered is a good deal or not.
The broker works with a lending institution in providing the paperwork and application forms necessary to substantiate your income and ability to pay the lender. This can include all the copies of your tax returns, W-2s, and bank account statements. Be prepared to give your mortgage broker any type of document they need to apply for your loan.
What a Broker Shouldnt Do
If you are not in a position to buy a home because of your income, steer clear of any mortgage broker that fudges the numbers. The numbers are set so that you don’t borrow above your means. Lying on a loan can have serious consequences, both legal and financial. So, if you see a discrepancy between what you stated to your mortgage loan officer and the final paperwork, speak up before you sign.
If you are in a fixed rate loan with little incentive to refinance, you may still get brokers who call trying to sell you all the benefits of a refinance. Keep in mind that they are paid to close deals, not necessarily to make sure you get a better deal than the one you have.
The mortgage broker should also provide you with a good faith estimate and the cost of fees assessed to your loan before you close. Any paperwork that is missing or different at closing should be reviewed thoroughly before you sign.
