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 Up Front Mortgage Broker Information
At a customers request, UMBs disclose their fees to customers in writing and in advance. UMBs also disclose the wholesale prices (rates and points) they receive from lenders. Customers of UMBs pay United Mortgage Financial Group's fee plus wholesale loan prices.
Lenders offer wholesale prices to brokers because brokers perform costly services that lenders would otherwise be forced to provide themselves. The most important is finding, counseling and qualifying borrowers.Lenders who operate through both wholesale and retail distribution channels quote wholesale rates on fixed-rate mortgages from .25% to .50% lower than retail rates. The average is about .375%, worth approximately 1.5 points. Points are an upfront credit charge expressed as a percent of the loan amount. On an average loan of $130,000, 1.5 points amounts to $1,950.
While UMB customers pay a disclosed broker's fee and the disclosed wholesale loan price, conventional mortgage brokers (MBs) add a markup to the wholesale prices, and quote only the resulting retail prices to customers. Their fee is the markup, plus any payments that they receive from lenders. Most MBs dont reveal their fees until required by law -- after an application has been submitted.
Because of the way they price their services, the UMBs interests are fully aligned with those of customers. In contrast, MBs are often in a conflict situation with customers.
Since the UMB's fee is stipulated in advance, customers are automatically credited with any rebates received from lenders that would increase the UMBs fee beyond what was agreed upon. MBs may or may not credit customers for such rebates.
When directed by the customer, UMBs will lock the terms (rate and points) of the loan, and will provide a copy of the written confirmation of the rate lock as soon as it has been received from the lender.
In contrast, some MBs will inform the customer that a loan has been locked, but not lock with the lender. This is often a source of extra profit to brokers, but it exposes the customer to the risk of being left without a loan if interest rates explode during the lock period.
If a customer elects not to lock until shortly before closing, the UMB commits to provide the best wholesale price available on the day the loan is locked. MBs often increase their markup on such customers, who lose their bargaining power as they near closing. By far the most important benefit consumers receive from dealing with a UMB is confidence that United Mortgage Financial Group is shopping the market in the consumers behalf rather than on United Mortgage Financial Group's behalf.
Mortgage brokers can shop lenders much more effectively than consumers. Brokers are in the market every day, where consumers are in the market a few times during their lives. Brokers receive price information from lenders daily as a matter of course. They know the features of transactions that affect price. They have relationships with multiple lenders, and are therefore well positioned to find and shop among the lenders offering particular features.
The potential savings from expert shopping are particularly large for borrowers with poor credit. This reflects the much greater price differences among lenders serving tour market segment than among lenders serving prime borrowers.
UMB's also counsel borrowers on the loan programs that best meet their needs, and on methods of overcoming potential barriers to loan qualification.
Commitment of a UMB
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1. The broker will be the customer's representative or agent, and will endeavor to act in the best interests of the customer.
2. The broker will establish a price for services upfront, in writing, based on information provided by the customer.
*The price may be a fixed dollar amount, a percent of the loan, an hourly charge for the broker's time, or a combination of these.
*The price or prices will cover all the services provided by the broker. This includes loan processing, for which customers always pay a broker or lender.
*On third party services, such as an appraisal, ordered by the broker but paid for by the customer, the broker will provide the invoice from the third party service provider at the customer’s request. Alternatively, the broker may have the payment made directly by the customer to the third party service provider.
3. Any payments the broker receives from third parties involved in the transaction will be credited to the customer, unless such payments are included in the broker's fee.
*If the broker's fee is 1 point, for example, and the broker collects 1 point from the lender as a “ yield spread premium”, the broker either charges the customer 1 point and credits the customer with the yield spread premium, or charges the customer nothing and retains the yield spread premium.
4. The broker will use his best efforts to determine the loan type, features, and lender services that best meet the customer's needs, and to find the best wholesale price for that loan.
5. The wholesale prices from which the broker's selection is made will be disclosed at the customer's request.
6. When directed by a customer who has met lender lock requirements, the broker will lock the terms (rate, points, and other major features) of the loan, and will provide a copy of the written confirmation of the rate lock as soon as it has been received from the lender. At the same time, the broker will guarantee all fees charged by the lender who locks the rate. (Added January 23, 2006).
7. If a customer elects to float the rate/points, the broker will provide the customer the best wholesale float price available to that customer on the day the loan is finally locked.
8. The broker will maintain a web site on which its commitment to its customers is prominently displayed, along with any other information the broker wishes to convey. If the web site displays mortgage prices, the broker will indicate whether the prices are retail or wholesale. If prices are retail, the markup will be shown. If prices are wholesale, a prominent note will indicate that the broker's fee will be an added charge. (Added January 23, 2006).
9. A broker who displays mortgages prices on its web site must indicate whether the prices are retail or wholesale. If they are retail, the markup must be shown. If they are wholesale, the broker must indicate that the prices do not include the broker's fee.
Copyright Jack Guttentag 2006 | |
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