Mortgage Brokers

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Mortgage Brokers

A mortgage broker is a firm or individual who, for a commission, matches borrowers and lenders. A mortgage broker takes applications and sometimes processes loans, but generally does not use its own funds for closing.

Do not confuse a mortgage broker with a mortgage banker. A mortgage broker brings together both the parties of a loan but does not actually originate or service the loan, while a mortgage banker originates and services the loan.

You could say the mortgage broker acts as an intermediary who sources mortgages on behalf of individuals or businesses.

Traditionally, banks are other lenders have distributed their own products. However as markets for mortgages have become more competitive, the role of the mortgage broker has become more popular. Today in most developed mortgage markets mortgage brokers are the largest distributors of mortgage products for lenders.

The majority of mortgage brokers are regulated to ensure a level of protection for the consumer. The extent of the regulation depends on the jurisdiction.

In competitive mortgage markets many lenders use an array of rate offers and other incentives to attract customers. To many customers, due to their infrequent purchases or mortgage products, the mortgage market may appear confusing and somewhat daunting. A mortgage broker can guide them through the process of selecting a suitable mortgage and offer mortgage and property related financial advice.

For borrowers with poor credit records, or other unusual circumstances, finding a lender may be difficult. A mortgage broker, having specialised knowledge and multiple lending sources, will normally be a valuable resource in obtaining financing.

The nature and scope of a mortgage broker’s activities or tasks varies with jurisdiction. For example, in the UK anyone offering mortgage brokerage is offering a regulated financial activity; the broker is responsible for ensuring the advice is later shown to be defective. In other jurisdictions the transaction undertaken by the broker may be limited to pointing the borrower in the direction of an appropriate lender and no advice given. Therefore the work undertaken by the broker will depend on the depth of their service and liabilities.

Typically the following tasks are undertaken:

Marketing to attract clients
Assessment of the borrower’s circumstances. This may include assessment of credit history (normally obtained via a credit report) and affordability (verified by income documentation).
Assessing the market to find a mortgage product that fits the client’s needs.
Applying for a lenders agreement in principle (pre-approval)
Gathering all needed documents (payslips, bank statements, etc.)
Completing a lender application form
Explaining the legal disclosures
Submitting all material to the lender