How to choose a mortgage broker

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The other day, a client whose file has been in process in our office for about a week, asked me how he could be sure that the rate I was quoting was accurate and true. I was initially a little bothered by the directness of such a question and its implication. Then I relaxed, knowing that I was all right in my ethics, and responded, "You can’t be sure". This event caused me to reflect that I have often been asked to explain how to choose one broker over another.

There are probably four major criteria to consider in the selection of a mortgage broker, they are in order of importance: reputation, service level, product flexibility, and interest rates. Too often, borrowers and other related parties to the real estate transaction, focus only on the lowest interest rate quote. This is a serious mistake. Unfortunately many mortgage professionals use "bait and switch" tactics to get business in the door, "today’s rate is 7.500%, send me your loan", when the rate is actually 7.750%. These brokers will then hope that rates go down or stay the same while they work on the loan so as to not get caught. Rates DO change daily, however this practice is common enough to make note and effectively disqualifies the interest rate method of choosing your broker as being all that valid. So how does a borrower do his/her best to get a competitive interest rate?

The answer involves also the second category, product flexibility. A borrower should first determine if he/she has a standard conventional loan that can be sold in the secondary mortgage market. A knowledgeable Realtor or friend should be able to help with this. Once it is determined that the transaction is conventional, then a borrower can verify the rate quote through a qualified source such as the Wall Street Journal, a financial television station, or a reputable investment professional. The borrower can also keep an eye on the direction of rates if he/she has not opted to lock the rate at a date prior to closing. It is also important to understand that interest rates on conventional transactions are established on a national level and though lenders may vary slightly, most should have the same rates. So, a general rule applies that if one broker is quoting a much lower rate, it is likely that something funny is going on. In fact, consider that a broker who is quoting the higher rate may be your best bet (sounds a little odd, huh?). He/she may be telling it like it is and there may be no games along the way and you may close with the lowest rate "truly" available.

In New Mexico, many residential mortgage loans are non-conventional requiring product flexibility from the mortgage broker. Determining a competitive rate is more difficult in this instance but can be done by working with an experienced Realtor and a mortgage broker that he/she recommends. Non-conventional loans include but are not limited to:

     Loans to non-US citizens

     Loans on non-conforming properties

     Loans to people with a marginal or bad credit history

     Loans to people with unverifiable income ("no-doc")

     Loans above $650,000

Once again, borrowers are well advised to take rate quotes with a grain of salt and to stick with well established brokers that have an extended track record in actually closing these types of loans.

The last two criteria, service level and reputation, should speak for themselves but probably do not get the attention that they deserve from shopping borrowers. Fortunately, a mortgage broker will probably not be able to establish a good reputation if he/she plays games with interest rates or does not provide service enough to close a loan without problems. Successful Realtors and other borrowers know this and will not recommend these brokers to their clients and friends. New Mexico is one of only a handful of states that still has absolutely no licensing or educational requirement for an individual or company to set up shop as a mortgage brokerage firm. Anyone can do it. Parties interested in helping to expedite the regulation of the mortgage industry in New Mexico should contact the following State department:

State of New Mexico

Regulation and Licensing Dept

Financial Institutions Division

725 St. Michael’s Drive

Santa Fe, NM  87501

In the end, it all boils down to reputation, which should perhaps not be one of my four criteria but rather should be the one and only test. After all, don’t reputations generally get earned through actions and not words? In general, experienced Realtors know best and are the borrower’s most consistent way of ending up with the right mortgage company.

Mace Kochenderfer is a New Mexico Certified Mortgage Broker and owner of Anchor Mortgage Group, Inc. He can be reached at (505) 897-4900.

10-23-99

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MYSTERY SOLVED!!!<?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />

Who is Fannie Mae???

Fannie Mae is likened to a government-monitored mutual fund.

Where does Fannie Mae get her money???

Most people invest in Fannie Mae (& family) hoping to realize a higher rate of return on their money than they would in a bank. 

Why would someone put money in Fannie Mae???

Since their investments or shares are backed by real property, it makes for a very safe and secure investment compared to most other mutual funds, which are more or less, paper.  Unlike a C.D., the rates can fluctuate and are not guaranteed, however, the rate of return is better than the going C.D. rates.

What does Fannie Mae do with the money???

Fannie Mae is the investor for most of the A-paper mortgages.

Here is a short story to demonstrate the cycle...

Martha, a retired woman, has $100,000 to invest somewhere.  Martha lives on a fixed income and cannot afford to take risk.  She is not thrilled with the going Certificate of Deposit rate of 5.5%, so Martha decides to invest in FNMA funds and earn about 6.5%.  She realizes that unlike a C.D. it is not guaranteed, but is comfortable with the paper and property backing it.

One year later, Martha wants to buy a home.  She has found a home for $125,000, and wants to put down 20%.  Martha goes to a   very small mortgage company to borrow the rest at 8%.  This particular mortgage company has a pool of money totaling $1,000,000.  Two weeks later the loan closes and Martha is a proud homeowner.  After the closing, the mortgage company sells the note to FNMA in order to get back their $100,000 to lend to someone else.  FNMA gets the money to buy the note from people like Martha.  FNMA now has a note earning 8%.

Now, FNMA does not service the loan, nor do they want to.  So, FNMA pays the mortgage company 1.5% to service the loan for the term of the mortgage (or $30,800 over 30 years - this is where the mortgage company makes its money).  So in reality, FNMA is earning 6.5%, which it pays to its shareowners like Martha!

I've simplified this a little, but you at least now have the general idea. 

MACE KOCHENDERFER 897-4900     

REVIEWING THE MORTGAGE PROCESS

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LOAN APPLICATION PROCESS

Ø      Borrowers are Pre-Qualified

Ø      A Mortgage Program is Selected

Ø      An Application (1003) is Completed

Ø      A Credit Report is Pulled and Issues Addressed

Ø      Verification of Liquid Assets / Deposits

Ø      Verification of Employment

Ø      Request the Appraisal Fee from the Listing Agent

Ø      A Title Binder Request Form is Sent to Title

Ø      The Loan File is Assembled and Sent to Underwriting

UNDERWRITING

Ø      All Documents are Reviewed for Correctness and Completeness

Ø      Re-Request Verifications if Necessary

Ø      Additional Information may be Requested as Required

Ø      The Normal Turn-Around Time is Usually 24 to 48 Hours Once U/W has Received the File     (End of Month May Be Longer)

Ø      The Loan is Approved, Suspended, or Rejected

LOAN APPROVED

Ø      A Closing Date is Set-Up for both Sellers and Buyers

Ø      The Buyer is Contacted with Final Cash to Close Figures

FUNDING

Ø      Closing Instruction Should be Sent to Title 2 Days Prior to Closing

Ø      Buyer and Seller Sign Documents

Ø      Loan Officer Funds the Loan at the Closing Table

Ø      Funds are Dispersed After Recording

OR ELSE…

Ø      Buyer and Seller Sign Documents

Ø      The Loan Docs are Sent Back to the Investor

Ø      Docs are Reviewed for Accuracy

Ø      The Investor’s Funding Dept Review the Docs for Accuracy

Ø      Funding Dept Verifies that all Requirements have been Met

Ø      If Acceptable, the Loan is Funded to the Title Company

Fortunately, your team of real estate professionals work together to make the process appear less complicated to you.

Give us a call at 897-4900 for us to help you!