Utilizing the services of a resourceful mortgage broker can save you time, money, and worry. But because not all brokers are created equal, it's important that you choose yours carefully to find one who is skillful, reliable, ethical, and trustworthy.
Jack M. Guttentag, Professor of Finance Emeritus at the Wharton School of the University of Pennsylvania, considers the ethics of mortgage brokers so important that he coined and copyrighted the term "Upfront Mortgage Broker" (UMB). He uses the title to describe the transparency and honesty of those mortgage brokers he says adhere to a UMB code of conduct.
While there are many legitimate brokers who are not included in his list of "UMB" professionals, the qualities that the professor advises that consumers look for in a broker are universally accepted as good checklist.
Ethics and mortgage brokers
Here are some of the professional standards and procedures to be aware of when selecting a qualified mortgage broker:
Mortgage brokers should disclose their fees to customers in writing and in advance. By law brokers must reveal their fees after an application has been submitted; but this is way too late for consumers to make informed decisions.
Mortgage brokers should disclose the wholesale interest rates and points that the lenders in their network offer. Some brokers add on their own fees, but only disclose the higher retail figures to consumers. As a result, customers end up paying more than they should.
Your mortgage broker should answer all your questions, offer helpful advice, and qualify you for the best mortgage and home purchase options available.
Mortgage brokers are often paid "finder's fees" from lenders. These should be disclosed to ensure that your broker has no hidden ulterior motives that might represent a conflict of interest with your own goals.
When the fees that brokers receive from lenders are stipulated in advance, customers can benefit from any rebates or discounts that the lender might include later. Conversely, consumers who have agreed in advance to fees do not have to worry about paying more than what was originally agreed upon, in case lenders raise their costs later.
It's essential that your broker lock in your loan's interest rate when you ask him to. A good broker will confirm the lock in writing as soon as the transaction is completed.
These guidelines add up to one general conclusion: Your mortgage broker should work for your benefit and put your goals first and foremost. In exchange for this quality of service, you should expect to pay the broker an appropriate fee to compensate for her help, or at least anticipate that the lender who finances your home purchase will pay the broker a reasonable finder's fee.
Listening to the advice of Professor Guttentag isn't an academic issue-it's simply great sense.