Today's Mortgage Broker
The mortgage broker of yesteryear was a bit different than today's mortgage broker. A mortgage broker use to act more along the lines of an agent rather than a loan officer. Here's what I mean. If you're a sports fan then you are probably familiar with certain sports figures that pull in the BIG contracts for ungodly sums of money. Skill and ability have a lot to do with that but the major factor in contract negotiations is usually the athlete's agent. The agent is hired to represent the athlete and secure the best possible terms for him/her. The agent always receives a split or percentage for his/her services but it's a win win situation for both parties involved.
Back in the day, a mortgage broker would search for and secure the best possible terms for his or her client and in exchange for their services, the borrower would pay a commission to the broker. Today's market has changed things a bit and now a mortgage broker generally offers the loan program that provides him/her with the highest YSP (Yield Spread Premium) or incentive to sell a particular program.
I read an article a week or so ago from NAR (National Association of Realtors) that stated that 43% of all mortgage financed home purchase transactions in 2005 were completed with the assistance of 100% financing. Almost 50%!! What that tells me is that there were a LARGE number of home buyers that did not have the cash to put money down. If this was the case, then how could they pay a mortgage broker a fee to acquire the best possible terms?
The truth is that today's mortgage broker is more of a warehouse club like Costco or Sam's Club. Sometimes they have the best deals and sometimes they don't. If you choose to work with an ethical mortgage broker and he/she received a YSP from the investor, you will most likely still be better off than if you went to the bank or credit union. A good mortgage broker has access to a number of loan programs and is constantly looking for better rates and service for his/her clients. It is possible to get an interest rate below the retail going rate without having to pay a large broker fee.
Lastly, never trust the national averages on websites over your broker. Give him or her a chance to explain how they came up with a certain rate or loan program before making a judgement. Mortgage rates for $500,000 homes in California cannot compare with rates on $125,000 homes in Michigan. It's the truth. Several factors are involved in determining interest rates such as loan size, loan to home value ratios, credit worthiness, debt to income ratios, etc. Every wholesale investor will have their own rate adjustments for those things. Another good practice would be to ask your mortgage professional what it is that you can do to lower your rate or better your terms.
As always, if you have a question or a concern or perhaps need a second opinion, please feel free to contact me.
Posted by Jason Lash at 2:31 PM
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