Beware The Broker
Real Estate Licensing
When you decided to purchase your home, you choose a real estate agent or a Realtor to work with who is required by law to be licensed to sell real estate. Additionally, a Realtor often acts as an agent for one of the parties (usually the buyer). Sometimes a buyer's agent is contracted as well. When an agent enters into an agreement with either a buyer or seller, there are legal obligations that ensue and the agent is bound by this obligation to work in the best interest of the client. In the real estate world, agents who put their interests above those of their client are headed for fines and penalties, including the possibility of jail time.
Mortgage Money Free-For-All?
On the other hand, the mortgage lending field has no such protection. Licensing mandates vary from state to state, with some places having none at all, and the level of watchdog efforts can often be in question. When a bank lends money, there are typically a lot of federal and state regulations it must adhere to, whereas a broker seems to be a free agent in more ways than one.
There is a gross inconsistency and lack of licensing of brokers across the US. Loan officers and consultants, those who work with borrowers, are required to be licensed in less than one-third of the states of the US, which means that people who borrow money often end up putting their loans into the hands of incompetent people. Many of these brokers have had little or no training and have not been required to take any courses or pass an examination. They often have little experience and in many cases, there has been no check on their criminal status.
Notwithstanding, there are many legal devices in place to protect mortgage borrowers. There are Federal Laws, such as the Truth-in-Lending Act, the Fair Housing Act and the Real Estate Settlement Procedures Act, that provide protection against fraud, deceptive marketing, and discrimination. However, none of these laws puts the onus on the lender to protect the borrower's interests as is found in real estate sales.
Lender Looks Out For Number One
The Lender is looking out for Number One and there are two reasons for this. The first reason is competition. In order to make it in the lending market they have to beat out other brokers for the best rates. The second fact is that they have to make it worth the investors' while to use them as a vehicle for mortgage sales.
It's interesting to note that there is seldom any incentive for a broker to find the best rates for a borrower. Commissions provide the basis of a loan officer's paycheck, which means that the bigger the loan and the more points it is worth yields more money for the loan person. The incentive then is to sell the largest loan worth the most points-definitely in the interest of the loan officer and not the borrower.
So, what's a borrower to do?
Look out for your own interests. Go into the process with a good dose of skepticism and a critical eye. Question everything. If you don't get the answers you need, or if the lender shies away from your question, strike them from the list. Do your homework and check out what is available from the various lenders. It's important to get every promise in writing. By carefully shopping and finding a broker you can work with, you will be able to secure a mortgage with a good rate.
