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A mortgage lender helps
an individual or business find the right mortgage. In today's world, the mortgage industry has
become increasingly competitive. While banks and lenders have
traditionally sourced their own mortgage products, mortgage lenders have
become increasingly popular. In several countries, including the United
States, Australia, United Kingdom and Canada, mortgage lenders distribute
the majority of mortgage products. Many consumers seek out the service of
Certified Mortgage Planners, who are trained to work with Certified
Financial Planners in order to provide consumers with a mortgage that fits
into the consumer's overall financial plan. The majority of lenders
are regulated due to the critical nature of the lending process. Potential
borrowers should check their area's requirements for mortgage lenders
before they begin the mortgage process.
Mortgage Lender
Mortgage lenders guide borrowers through the process of finding the right mortgage. There are many lenders out there with different rate offers and incentives. Mortgage products are often confusing to many borrowers due to the numerous terms and options. Brokers provide borrowers with both mortgage and financial advice in purchasing a property.
Borrowers with poor credit or special circumstances, such as being self-employed, can have a difficult time finding a mortgage. Mortgage lenders are a valuable resource in sifting through multiple lending sources to find the right financing for special situations.
What can a mortgage lender do for you?
Over 80% of mortgages in the United States are negotiated through mortgage lenders. Mortgage lenders provide numerous services, depending on the area in which they practice. The majority of brokers in the United States simply help borrowers find the appropriate lenders. The service provided by your mortgage lender depends on their service and education.
Many mortgage lenders provide the following services:
" Assessment of borrower's financial
situation, including credit history and income.
" Search of the
market to find appropriate mortgage products.
" Application for
pre-approval.
" Organization of the necessary documents for
mortgage application.
" Assistance in completing the lender
application form.
" Explanations of legal disclosures, terms and
mortgage documents.
" Submitting all documentation for mortgage
application.
A mortgage lender is not a loan
officer
Mortgage lenders are required to be licensed in most states. In most jurisdictions, brokers are legally liable for fraud during the life of the loan. A loan officer is not usually liable for lending actions as they work under the license of the financial institution. Most loan officers have less experience in the mortgage industry.
The influence of the secondary market
It has become common in the mortgage industry for mortgage loans to be sold. Only a small percentage of banks originate and service their own loans. Most banks act as brokers due to the increasing size of mortgages - few can afford to offer a high percentage of their depositor's money as mortgages.
Most mortgage lenders find it practical to have wholesalers in place to purchase mortgages. A mortgage banker in New York City, for example, is only required to have $50,000 in cash assets. The remainder may be in the form of property and credit lines from other sources in total of $1,200,000. The total amount is only enough to make approximately two mortgages. This means that the lender is fully dependent on the secondary market to fund loans.
The largest wholesale institutions are the Federal National Mortgage Association, Fannie Mae and Freddie Mac. The mortgages granted must comply with the standard application form guidelines of the wholesalers in order to be eligible for sale. The goal is to package the loans in order to be sold in the secondary market for capital. When interest rates fall and the portfolio has a larger interest rate than the current market supports, the lender is able to sell the loan at a large profit. Many lenders hold their loans until timing is right to make a profit.
Often, a lender will have a loan pre-sold prior to the closing. Few lenders close, keep and service the mortgage loan. Though this is declining, this can still be found in a few local financial institutions.
Consumer laws protect mortgage borrowers
A mortgage lender must follow set legal standards in order to charge a fee for his or her services. The fees cannot exceed a certain percentage. If they are excessive, the loan is referred to as a high-cost mortgage, requiring additional disclosures and warnings of risk to the borrower. The consumer laws help keep costs lower.
Mortgage lenders are not subject to these regulations. Because the selling of loans on the secondary market results in higher costs, most lenders charge higher fees.
Mortgage fraud and predatory lending
Predatory lending has become prevalent in the mortgage industry. According to CNN, many consumers will fall victim to predatory lending practices. While many mortgage lenders and lenders are operating within the legal limitations, they often find loopholes in the law that allow them a higher profit. For example, some lenders use the "yield spread premium," which is a cash rebate paid by the wholesale lender to brokers who get a borrower to accept a higher interest rate than they qualify for.
Borrowers should be aware of the following signs of predatory lending:
" Falsification of income, assets or other
documentation for application.
" Yield spread premium or other
hidden fees not disclosed before the settlement/closing.
" Failure
to provide all RESPA documentation, including the Good Faith Estimate,
Special Information Booklet, Truth in Lending and other
disclosures.
" Lenders that push a refinance that has no benefit
to the borrower.
" Getting a higher loan amount through an
inflated or falsified appraisal.
" Using a borrower's ignorance to
profit through a mortgage transaction.
Many predatory lending practices revolve around the insertion of hidden clauses in contracts that say the borrower will pay the broker or lender a finder's fee for the mortgage, whether or not it closes. This practice is legal, but is considered unethical by the National Association of mortgage lenders. Many dishonest brokers will convince the borrower that he doesn't need to read the application because it is standard process. The borrower is then charged costs that were unknown without receiving a mortgage.
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