Yes, but I could not have done it without the help of several ethical brokers, who wanted to conduct their business in an upfront and fully transparent way. They are Catherine Coy out of the Los Angeles area, Jeff Jaye from the San Francisco Bay area, and Kevin Iverson from Denver. I call these brokers Upfront Mortgage Brokerstm - UMBs for short.
Here's how they work. At a customer's 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 the broker'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 b orrowers.
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 don't 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 UMB's 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 the broker 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 the broker is shopping the market in the consumer's behalf rather than in the broker'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 this market segment than among lenders serving "prime" borrowers.
UMBs also counsel borrowers on the loan programs that best meet their needs, and on methods of overcoming potential barriers to loan qualification.
UMBs will set themselves apart by maintaining web sites on which their commitment to customers is prominently displayed. I will list them on my site, with links to theirs. Currently, the list is limited to the three brokers who helped develop the concept plus a few others.
But you need not wait to take advantage of this program. Copy the “UMB Commitment” from here, and ask brokers if they are willing to do business in that way. They are unlikely to say “no”, especially if they realize you understand the value that brokers provide. Expect them to interview you, however, before quoting a price.
