WTF is a Mortgage Broker?

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It’s all in the name, a mortgage broker is a person, or company that finds people who want a mortgage to buy or refinance a home and pairs them with a suitable lender.

The mortgage broker will see your home loan through the entire process — from the initial application to the closing of the loan. Then the lender will take over to collect your payments. Mortgage brokers are often local, informed and a part of your community.

Why be a mortgage broker? Why not just work for the bank?

One reason to be a mortgage broker is to be more aligned with the consumer.

Consumers who want a home loan have 3 options — a bank or credit union, a non-bank lender, or a mortgage broker. All three offer mortgages with different guidelines, restrictions and interest rates.

Banks will often come in and out of the market depending on their appetite for the mortgage business. As their market share continues to decline, it appears they are not interested in the mortgage business these days.

Banks will restrict their mortgage business by tightening up their lending guidelines or by increasing their rates. Rather than getting rid a specific program — say jumbo adjustable rate mortgages — banks will simply increase the rate they offer an adjustable rate mortgage to the consumer so it will be too high. This way, if they decide to get back into this market, they can simply lower the rate.

Another way banks (and non-bank lenders) can restrict their share of the mortgage business is tightening up their lending guidelines. One day they decide doing a mortgage on an investment property is too risky for them. What do they do? Increase the minimum credit score to qualify for these loans so high that very few consumers qualify.

I’ve seen banks increase their credit score for investment property mortgages to 780. This happened in March 2020 when they were forecasting a rash of tenant defaults and subsequent mortgage default by building owners. The mass default didn’t happen.

Mortgage Brokers work with many lenders, banks, funds or entities that lend to homeowners and homebuyers. A mortgage broker can have a relationship with many lenders. These lenders offer an array of mortgage products from investment properties…