An Upfront Mortgage Broker
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(UMB) is one who has elected to do business in an upfront and fully transparent way. The major differences between a UMB and a conventional mortgage broker (MB) are:
1. UMBs disclose their fees to customers in advance and in writing, and disclose the wholesale prices (rates and points) passed through from lenders. Customers of UMBs pay the broker's fee plus wholesale loan prices.
In contrast, conventional mortgage brokers (MBs) add a markup to the wholesale prices, and quote the resulting "retail prices" to customers. Most MBs reveal their markup only in required disclosures after an application has been submitted.
2. The UMBs interests are fully aligned with those of customers. They can thus represent borrowers in shopping for loans. In contrast, MBs shopping the market are often in a conflict situation with customers. For example:
*The loan type that best meets the customer's needs may not be the one that allows the largest markup for the MB.
*MBs may profit by ignoring customer requests to lock the rate/points, putting the customer at risk.
*MBs often increase their markup on customers who allow the rate/points to float by not giving them the best available rate (the float rate) when the loan is finally locked.
3. UMBs credit customers with any rebates they receive from third parties. Mortgage brokers sometimes receive rebates from lenders or concessions from home sellers. UMBs credit customers for any such payments that would otherwise increase the broker's fee beyond what was agreed upon.
In contrast, MBs may or may not credit customers for payments from third parties, depending on the circumstances.
