What is a Mortgage Broker
A mortgage broker is a licensed professional who acts as a middle man between borrower's and lenders. Over 80% of home loans issued today are by brokers. The banks have used brokers to effectively outsource the hassles of working with borrowers (sorry guys, but that's the most important reason brokers exist), and also to outsource some of the liabilities for fraud and foreclosure onto the originators through legal agreements.
During the process of loan origination, he/she gathers and processes paperwork associated with mortgaging real estate. A loan officer acts as the conduit between buyer and lender. Most states require the mortgage broker to be licensed, others do not.
Why use a broker? Why not go straight to the bank?
Banks want people as retail mortgage clients who don't need the money! They prefer creme de la creme and leave the other 80% for the brokerage industry. Don't fret about paying a little extra to a broker, they do much of the work, and banks would either deny more credit, or charge even higher margins to compensate employees for the kind of high stress work performed by brokers for their less than perfect profile borrowers.
This cuts to the reason the brokerage industry exists. Banks offer more extensive programs with less stringent documentation requirements and guidelines to Brokers than to retail customers. The reasoning behind this is manyfold:
Banks don't:
- Like people, they like profits. Brokers deal with people
- Don't want to appear too lenient in granting credit
- Wish to have the expense of higher salaried payrolls
- Want the risk of fraud by making incentives to loan officers to sell more loans
- Like the potential conflicts of interest involved in being a direct lender
- Want regulatory trouble, which can appear if they issue retail consumer credit under easier terms or higher interest rates
Banks do:
- Like profits, not people
- Prefer to streamline their processes by dealing with trained professionals
- Like to separate the underwriting process from the originators
- Want to issue more credit to more people
- WANT ONLY THE CREME DE LA CREME RETAIL BORROWERS, PRIMARILY THOSE WHO DON'T NEED THE MONEY
Difference Between Broker and Loan Officer
Mainly licensing. States regulate lending practise and licensing, so this is different all over, however, most have a license for those who wish to be a "Broker Associate", a "Brokerage Business" and a "Direct Lender".
A Broker is almost always registered with the state, and personally liable (punishable by revocation or prison) for fraud for the life of a loan. A loan officer is typically not liable for their actions, and are working under the umbrella license of the institution they are at. Typically, they have lessor experience in the field.
Also, loan officer usually connotes someone who works for a lender, and has some sort of hand in the internal processes of a lender. A broker is exclusively using the money of others to table fund their loans.
Tasks of Mortgage Broker
- Marketing to attract clients,
- Taking an application (form 1003),
- Gathering all needed documents (paystubs, bank statements, etc.),
- Walking the clients through legal disclosures,
- Pulling and studying the clients tri-merge credit report,
- Shopping for a loan product that fits the clients needs,
- Processing the loan (This may be performed by a Processor),