Interview with the Expert: Finding a Mortgage Broker You Can Trust
In her Mortgage Minute column, Debbie Siegel often states that real estate investors should work with mortgage brokers or financial lenders they trust. Given the recent financial market meltdown and the exposure of shady and even illegal practices by unscrupulous lenders, our question to Debbie is, "How do you find a broker you can trust?"
In business for herself since 2000, Debbie has closed over $50 million in loans and has grown her business through hard work, referrals, and a firm commitment to honesty and integrity. She recently sat down with us to discuss why it's important for investors to work with brokers they trust - and how to go about finding these individuals.
ForeclosuresMass Monthly: Debbie, let's start off with a basic question. What's the difference between an independent mortgage broker and a loan officer at a bank?
Debbie Siegel: That's actually a good question because not many people understand the distinction between the two.
First off, mortgage brokers are neither bankers nor lenders. A mortgage broker is an independent real estate financing professional that matches you with the appropriate lender for mortgage or home equity transactions. Some brokers may underwrite loans; most of us, however, perform origination services, including investigating your credit worthiness, filing the disclosures and other paperwork, and basically holding your hand through the process.
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Mortgage brokers work closely with lenders (mortgage companies, banks, credit unions, etc.) to provide you with a wide selection of mortgages. While banks and other lenders typically offer only a small number of loan options, mortgage brokers deal with a large number of mortgage lenders across the nation. This gives you complete access to the most competitive rates and options available.
Mortgage brokers are also licensed: as a group, we must adhere to federal laws and regulations plus state laws and licensing boards. A loan officer at a bank or lending institution works for the bank or loan company selling that company's products. He or she may not hold a license.
The crucial difference is this: because I'm a licensed mortgage broker, if I use unscrupulous or illegal tactics to sell you a loan, I can be shut down by the Division of Banks, or I can be forced to return money to borrowers if I quoted something incorrectly.
A loan company whose loan agents use unscrupulous practices cannot be shut down; if wrong doing occurs, the agents can be fired. However, it's very easy for them be rehired somewhere else.
Licensing is a huge issue in the industry right now because regulators are trying to decide if everyone in the business should carry a license, not just independent contractors. Without a license, individual loan agents can move from company to company without anyone tracking their history or record. If I do something wrong, I can lose my livelihood.
FMM: It sounds like investors should ask brokers or loan agents if they carry a license.
DS: Absolutely! And the question should be, "Who carries the license, you or the company?"
FMM: What other questions should real estate investors ask?
DS: Always ask for references. Don't just ask for recent or former clients. Go a step further and ask for the name of the real estate agents this person works with as well as the attorney who does their closings - and then call these people and ask how long they've been in business and how long they've been working with the broker. You'll get a really good sense of a broker or loan agent through their network.
You'll also want to ask about their education and their work history. Look for brokers who have a background in finance or business. You want someone who can look at the big picture and your portfolio as well as talk about your goals. You want a mortgage professional who can recommend the best program for your situation, not someone thinking about their commission.
Don't feel uncomfortable asking the broker for these questions. If you're a real estate investor, your livelihood is on the line, too, plus you're developing what is potentially a lifetime relationship. If the broker or loan agent balks at giving you references, cross them off your list.
FMM: Speaking of commissions, why should one use a broker versus dealing with the bank directly? Aren't brokers more expensive?
DS: That's a question I'm frequently asked. Mortgage brokers have relationships with banks, credit unions and lending companies across the state or even across the nation. Because they don't work for one lender, they're able to give you unbiased advice on which loan programs are best for you.
Mortgage brokers quote wholesale rates that real estate investors usually don't get by simply walking into a bank.
Definitely ask your broker how he or she gets paid or is compensated by the bank - it's not a secret. Also, brokers have to show what they make on the Good Faith Estimate, the Broker Compensation Agreement, and the Attorney General Disclosure.
FMM: What else should people keep in mind when choosing a mortgage broker?
DS: Because real estate and financial terms are so complex, you really want someone that you feel comfortable with - someone who talks to you calmly and doesn't push you through the transaction or make you feel stupid for asking questions. If you don't understand the terms of a loan, ask questions, and keep asking until you do understand. A good mortgage professional will take the time to explain everything.
Also know that you have the right to bring your own real estate attorney to a closing. You also have the right to ask for all your paperwork before the closing so that your attorney can review the documents.
You'll want your attorney to review your Mortgage Note which explains the rate, term, and any adjustments and what these adjustments will be. Ask your attorney or the broker's attorney, the following questions, which by law they have to answer:
- What is my rate?
- If it's fixed, is the rate for the life of the loan?
- Do I have a pre-payment penalty?
- If it's an adjustable, please explain when the first adjustment will take place as well as the second adjustment.
- How high can my rate go and should I be concerned?
- Would you take this loan?
- Would you give your mother this loan?
FMM: Debbie, do you have any final advice for real estate investors?
DS: Yes! Don't let anyone intimidate you in order to get through the signing quickly. Allow for plenty of time to read every document to ensure you understand everything. Go with your gut - if you feel uncomfortable or something is wrong, walk away. You have the right to do this. However, if you've done your homework and have found a mortgage broker you trust, your signing should be problem free.
Debbie Siegel is president of Westchester Mortgage in Newton, MA. She is licensed in several Northeastern states and can be reached by email at Debbie@westchester-mortgage.com or by phone at 617-965-1236.
