- The Washington Times - Friday, November 13, 2009

Consumers interested in refinancing an existing mortgage or applying for a loan to buy a home face a variety of confusing decisions - such as whether to opt for a loan insured by the Federal Housing Administration (FHA) or a conventional loan, or a fixed-rate versus an adjustable-rate loan.

Before consumers delve into the details of home financing, however, they need to decide whether to work with a mortgage broker or a mortgage banker. Plenty of consumers do not understand the difference between these types of lenders and the impact their choice may have on their finances.

“A mortgage broker does not make loans,” says Howard Banker, executive director of the Fair Mortgage Collaborative (FMC), a nonprofit organization that identifies and certifies lenders that adhere to strict standards of fairness and safety. “A mortgage broker finds good loan products and then sells them to customers. Only a bank or credit union can actually lend money.”

Gibran Nicholas, chairman of the Certified Mortgage Planning Specialist (CMPS) Institute, an organization that trains and certifies both mortgage bankers and mortgage brokers, says that mortgage brokers function like independent insurance agents.

“An independent broker can place a customer with any company since he or she isn’t tied to just one institution,” says Mr. Nicholas. “A mortgage banker is limited to the products of the institution he or she works for.”

Mr. Nicholas says that while in the past consumers often preferred to work with a mortgage broker because of the wide variety of loan products available, changes in the mortgage industry mean that today’s brokers have similar offerings to bankers.

“There are pretty much only two ways to go with loans today, either an FHA-insured loan or a conventional loan,” says Mr. Nicholas.

Consumers can contact multiple lending institutions on their own to compare loan rates and terms, as well as check with their primary bank or credit union to see if special programs are available for customers.

Jim Pair, a certified mortgage consultant and president of the National Association of Mortgage Brokers (NAMB), says the main difference between brokers and bankers is that bankers can underwrite and fund loans.

“Mortgage brokers are independent contractors who can pick the loans with the best pricing to suit their customers,” says Mr. Pair. “Typically, because brokers often work by referral, they are extremely customer-service oriented and will develop personal relationships with their clients. The main reason to work with a mortgage broker is because of that personal relationship and the ability to offer a variety of loan products.”

While recognizing the consumer-oriented nature of mortgage brokers, Mr. Nicholas also says that there can be advantages to working directly with a mortgage banker.

“A bank can often underwrite your loan in-house, which means that sometimes they will have more control over the loan process than a mortgage broker,” says Mr. Nicholas.

Whether working with a broker or directly with a lender, it is important for consumers to understand that the “best deal” varies from person to person.

Typically, a loan with a lower interest rate will require additional upfront fees or “discount points” that may be unacceptable to some borrowers. Other borrowers may want to pay those fees or even opt for a shorter loan term in order to save money over the long run on interest payments. No single loan program is perfect for every customer.

One area of confusion for many consumers involves payment for loan services.

“Bankers and brokers typically get paid the same way, through commissions based on the number of loans generated and the terms of the loan,” says Mr. Nicholas. “Consumers pay the same amount for their loan whether they are working directly with a banker or a broker, but the payment names vary. Brokers typically charge what they call a ‘yield spread premium’ while a bank will simply charge fees.”

Mr. Banker warns that consumers should be careful to ask about fees when applying for a loan and to compare fees and rates from various lenders.

Whether working with a broker or a banker, financial experts recommend consumers interview several potential lenders to choose someone they can trust and communicate with easily. Several organizations offer certification for mortgage brokers and bankers, which means they have completed additional training and have a proven track record of ethical behavior.

The FMC has a “Fair and Safe” certification that is given to banks, mortgage brokers, credit unions and mortgage counseling groups in every state who adhere to high standards of fairness and safety for their customers. The FMC Web site (www.fairmortgage.org) includes a searchable database by ZIP code for borrowers to use to find certified lenders.

“FMC looks at actual loan files and reviews complaints, so we have the first system in place to automatically check all loans against common standards and pricing,” says Mr. Banker. “The lenders have to be within a standard range on certain types of loans, and they have to continually prove they are doing good work.”

CMPS focuses training on helping loan originators bring a professional approach to working with customers.

“Consumers want to be educated, not sold,” says Mr. Nicholas. “CMPS certification means that the lender has gone beyond standard mortgage training and can help consumers with budget issues. Banks will sometimes approve consumers for more money than they can comfortably afford to spend, so it’s important that mortgage specialists work with their customers to help them figure out how to accumulate a down payment and to structure their debt in the most appropriate way for them.”

About 5,000 lenders have been certified by CMPS across the county. Consumers can search the CMPS Web site (www.cmpsinstitute.org) by ZIP code to find a certified mortgage planning specialist in their area.

NAMB offers three levels of certification for mortgage brokers, including the general mortgage associate (GMA), certified residential mortgage specialist (CRMS) and the certified mortgage consultant (CMC) designations.

Each designation has different requirements, beginning with education and continuing with experience and additional training. Continuing education, including mortgage industry-related courses, are required for recertification. The NAMB Web site (www.namb.org) includes a database searchable by ZIP code for their members.

“Mortgage brokers who are members of NAMB must adhere to our code of ethics and can earn the ‘lending integrity seal of approval’ that means they use the best business practices for their customers,” says Mr. Pair.

Mr. Pair recommends that consumers check the Better Business Bureau for complaints against lenders and check in with each state for license complaints.

“Beginning in 2010, there will be a public registry for the entire country through the Nationwide Mortgage Licensing System (www.nationwidelicensingsystem.org), although many states have already signed on to the system,” says Mr. Pair. “Consumers will be able to check for complaints on this one site next year, no matter where their lender or broker is located.”

Locally, licenses and complaints can be checked in the District by calling the Department of Banking and Financial Regulation at 202/727-1563; in Virginia, the State Corporation Commission Bureau of Financial Institutions at 804/371-9416; and in Maryland, the Division of Financial Regulation at 410/230-6080.

“Most people shop for the best deal, but I say they should shop for the best loan originator,” says Mr. Nicholas.

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