Question about mortgage brokers (1 Viewer)

[Brian Perry]

My friend is currently refinancing his house and he went to a mortgage broker rather than directly to a bank. He was quoted 5.50% with no points (this was a week ago, before the latest dip in rates) and quoted about $1,460 in closing costs.

When he received the Good Faith Estimate (GFE) from the broker, my friend noticed it contained an item that had not been previously discussed: "compensation to broker." The GFE is supposedly an estimate of the charges the borrower is likely to incur at settlement, and for the most part it is. I can see the appraisal fee, processing fee, title charges, etc. which add up to the $1,460 in closing costs. In addition, there is an interest charge to be paid in advance (since the closing would not take place on the first day of the month). My friend agress with all of those items.

Then comes the "compensation to broker," which is listed at $3,289, or 1.1% of the loan. My friend is concerned that he will be expected to pay this. I think the actual lender (in this case, Washington Mutual) will be paying it to the broker as a finders fee.

If indeed my friend is not responsible for this payment, why is it listed on the GFE when it specifically states it is a list of borrower's costs at closing? And also, doesn't that seem like a big payment to the broker? What if my friend refinances again in six months? Does Washington Mutual get any of that $3,289 back from the broker? And finally, if my friend had gone directly to Washington Mutual for the loan, would he be entitled to a discount because Washington Mutual wouldn't have to pay the broker's fee?

Thanks.

 

[Mark Paquette]

I believe this is the case. I've used a mortgage broker several times and I have seen this fee disclosed, although I've never paid it.

 

[Scott Merryfield]

The good faith estimate should indictate which fees are covered by the borrower and which are paid by the lender.

 

[Shane Martin]

We used a mortgage broker on our house and didn't have to pay the fee that you mentioned. Then again he was a friend of father-in-law's so It could have been a buddy buddy deal. It appears that was not the case from this thread.

 

[Steve Zatkoff]

Sounds like his broker is trying to screw him. He should get a new broker. If he is in the Chicago area, the broker I used was great and very straight forward.

Resource Mortgage Plus
Angelo Cusinato (Owner)
(847) 221-5400 , ext. 223

Good luck,

Steve

 

[Tim Markley]

Why doesn't he just call the mortgage broker and ask about the fee?

 

[Brian Perry]

The broker just went on vacation, and he didn't have a chance to ask him.

 

[Eric_L]

There should be others at the office who can answer the question.... and 1%-2% is fair compensation for a conventional loan on good credit - presuming, of course, the loan officer gets it done with minimal troubles.

Sellin a loan is not like selling milk at the grocery store. A good loan officer will know what supporting info to get up front (so you only make one trip) and how to handle unexpected suprizes. (Like credit goofs or errors, faulty appraisals, title troubles, etc)

A good loan officer can make a huge difference in the loan experience; they know what to get, they keep you informed, and they are responsive.

Loans are one of the few things that have to be sold twice: Once to the borrower, and once to the lender (underwriter) Considering it takes 3-6 weeks for the average loan to close - and at least 4-10 hours of hands-on time, 1%-2% is very reasonable for a professional's time. If there are credit troubles or other difficulties, expect to pay more. (Though on the very low end of credit issues it does get a bit userous IMHO)

 

[Jeff Ulmer]

The whole point of going through a broker is that they are paid by the institution to secure the mortgage. This is not a cost the borrower should have to cover.

 

[Eric_L]

That is naive - the consumer always pays - it is just not always obvious how.

 

[Jeff Ulmer]

It is not naive, it is the only reason to use a broker in the first place. Of course the cost is covered somewhere, but the institution is responsible for the commission, it is NOT added into the cost of borrowing on the mortgage.

I have always found it easier just dealing with the bank directly. You can have a broker looks for the best rates, but often they don't have a line on the best deal for YOU. Get as many quotes as you can and approach the institution directly, and negotiate on your own.

 

[Brian Perry]

That's what I would tend to think...if someone has good credit and is willing to spend a few minutes searching the Internet, reading the paper, or visiting a few banks, I don't see what value a broker adds for the 1-2% he is charging. If someone has terrible credit and the broker has to call over the place to find a lender, I can see charging that, but otherwise it seems like a waste.

 

[Eric_L]

well, guess what, when you go to a bank they employ.... a mortgage broker! The only difference is that the mortgage broker has only ONE source to go to for loans.

It is a common misconception that banks do discount their conventional mortgage loans just because you walked through the doors.

They do not.

Just like everyone else, they are in biz to make money. Why should they charge less than what anyone else does? If anything the mortgage broker is forced to acept a slimmer profit margin.. though they do not have the large overhead costs of a bank building and staff.

 

[Jeff Ulmer]

No, they don't, that is why you need to do your research and shop around, then let the banks convince YOU why they should be priviledged with your business, not why you should have the priviledge of dealing with them. The interest rate is not the only consideration when taking out a mortgage, but it is an important one. You do have to negotiate if you want the best deal.

The mortgage broker gets paid by the bank, not you, so their involvement does not add to your cost. They can make securing financing easier on you by doing the applications, but the rates they get should be the same as you would find if you researched yourself. They should also be able to direct you to institutions that meet your borrowing needs.