Mortgage Broker
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A mortgage broker acts as an intermediary who brokers
mortgage loan A mortgage loan or simply mortgage (), in civil law jurisdicions known also as a hypothec loan, is a loan used either by purchasers of real property to raise funds to buy real estate, or by existing property owners to raise funds for any p ...
s on behalf of individuals or businesses. Traditionally, banks and other lending institutions have sold their own products. As markets for mortgages have become more competitive, however, the role of the mortgage broker has become more popular. In many developed mortgage markets today, (especially in the
United States The United States of America (U.S.A. or USA), commonly known as the United States (U.S. or US) or America, is a country primarily located in North America. It consists of 50 states, a federal district, five major unincorporated territorie ...
,
Canada Canada is a country in North America. Its ten provinces and three territories extend from the Atlantic Ocean to the Pacific Ocean and northward into the Arctic Ocean, covering over , making it the world's second-largest country by tot ...
, the
United Kingdom The United Kingdom of Great Britain and Northern Ireland, commonly known as the United Kingdom (UK) or Britain, is a country in Europe, off the north-western coast of the continental mainland. It comprises England, Scotland, Wales and North ...
,
Australia Australia, officially the Commonwealth of Australia, is a Sovereign state, sovereign country comprising the mainland of the Australia (continent), Australian continent, the island of Tasmania, and numerous List of islands of Australia, sma ...
,
New Zealand New Zealand ( mi, Aotearoa ) is an island country in the southwestern Pacific Ocean. It consists of two main landmasses—the North Island () and the South Island ()—and over 700 smaller islands. It is the sixth-largest island count ...
, and
Spain , image_flag = Bandera de España.svg , image_coat = Escudo de España (mazonado).svg , national_motto = ''Plus ultra'' (Latin)(English: "Further Beyond") , national_anthem = (English: "Royal March") , i ...
), mortgage brokers are the largest sellers of mortgage products for lenders. Mortgage brokers exist to find a bank or a direct lender that will be willing to make a specific loan an individual is seeking. Mortgage brokers in Canada are paid by the lender and do not charge fees for good credit applications. In the US, many mortgage brokers are regulated by their state and by the
CFPB The Consumer Financial Protection Bureau (CFPB) is an agency of the United States government responsible for consumer protection in the financial sector. CFPB's jurisdiction includes banks, credit unions, securities firms, payday lenders, mortg ...
to assure compliance with banking and finance laws in the jurisdiction of the consumer. The extent of the regulation depends on the jurisdiction.


Duties of a mortgage broker

Banking activities can be divided into the following: * Retail banking: dealing directly with individuals and small businesses * Business banking: providing services to mid-market business * Corporate banking: directed at large business entities * Land mortgage banking: it specializes in originating and/or serving land mortgage loans * Private banking: providing wealth management services to high-net-worth individuals and families * Investment banking: relating to activities on the financial markets Most banks are profit-making, private enterprises, however, some are owned by government, or are non-profits. Central banks are normally government-owned banks, which are often charged with quasi-regulatory responsibilities, e.g. supervising commercial banks, or controlling the cash interest rate. Central banks generally provide liquidity to the banking system and act as the
lender of last resort A lender of last resort (LOLR) is the institution in a financial system that acts as the provider of liquidity to a financial institution which finds itself unable to obtain sufficient liquidity in the interbank lending market when other facil ...
in the event of a crisis. The nature and scope of a mortgage broker's activities vary with jurisdiction. For example, anyone offering mortgage brokerage in the United Kingdom is offering a regulated financial activity; the broker is responsible for ensuring the advice is appropriate for the borrowers' circumstances and is held financially liable if the advice is later shown to be defective. In other jurisdictions, the transaction undertaken by the broker may be limited to a sales job: pointing the borrower in the direction of an appropriate lender, with no advice given, and with a commission collected for the sale. The work undertaken by the broker will depend on the depth of the broker's service and liabilities. Typically the following tasks are undertaken: * marketing to attract clients * assessment of the borrower's circumstances (Mortgage fact find forms interview) – 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. (Mortgage presentation/recommendations) * applying for a lenders agreement in principle (pre-approval) * gathering all needed documents (
paystub A paycheck, also spelled paycheque, pay check or pay cheque, is traditionally a paper document (a cheque) issued by an employer to pay an employee for services rendered. In recent times, the physical paycheck has been increasingly replaced by el ...
s/ payslips, bank statements, etc.) * completing a lender application form * explaining the legal disclosures * submitting all material to the lender * upholding their duty by saving their clients as much money as possible by offering best advice for the clients circumstances


Mortgage brokerage in the United States

According to a 2004 study by Wholesale Access Mortgage Research & Consulting, Inc., there are approximately 53,000 mortgage brokerage companies that employ an estimated 418,700 employees and that originate 68% of all residential loans in the United States. The remaining 32% of loans is retail done through the lender's retail channel, which means the lender does not go through a broker. The banks have used brokers to outsource the job of finding and qualifying borrowers, and to outsource some of the liabilities for fraud and foreclosure onto the originators through legal agreements. During the process of loan origination, the broker gathers and processes paperwork associated with mortgaging
real estate Real estate is property consisting of land and the buildings on it, along with its natural resources such as crops, minerals or water; immovable property of this nature; an interest vested in this (also) an item of real property, (more general ...
.


Difference between a mortgage broker and a loan officer

A mortgage broker works as a conduit between the buyer (borrower) and the lender (banks and non-bank lenders), whereas a loan officer typically works directly for the lender. Many states require the mortgage broker to be licensed. States regulate lending practice and licensing, and the rules vary from state to state. Most states require a license for those persons who wish to be a "Broker Associate", a "Brokerage Business", and a "Direct Lender". A mortgage broker is normally registered with the state, and is personally liable (punishable by revocation or prison) for fraud for the life of a loan. A loan officer works under the umbrella license of an institution, typically a bank or direct lender. Both positions have legal, moral, and professional responsibilities and obligations to prevent fraud and to fully disclose loan terms to both consumer and lender. Agents of mortgage brokers may refer to themselves as "loan officers". Mortgage brokers must also hold individual and company licenses through the
Nationwide Multi-State Licensing System and Registry The Nationwide Multi-State Licensing System and Registry (NMLS) is the system of record for non-depository, financial services licensing or registration in participating state agencies, including the District of Columbia and U.S. Territories of Pue ...
(NMLS). The goal of NMLS is to employ the benefits of local, state-based financial services regulation on a nationwide platform that provides for improved coordination and information sharing among regulators, increased efficiencies for industry, and enhanced consumer protection. Loan officers who work for a depository institution are required to be registered with the NMLS, but not licensed. Typically, a mortgage broker will make more money per loan than a loan officer, but a loan officer can use the referral network available from the lending institution to sell more loans. There are mortgage brokers and loan officers at all levels of experience.


Industry competitiveness

A large segment of the mortgage finance industry is commission-based. Potential clients can compare a lender's loan terms to those of others through advertisements or internet quotes. Mortgage brokers can obtain loan approvals from the largest secondary wholesale market lenders in the country. For example, Fannie Mae may issue a loan approval to a client through its mortgage broker, which can then be assigned to any of a number of mortgage bankers on the approved list. The broker will often compare rates for that day. The broker will then assign the loan to a designated licensed lender based on their pricing and closing speed. The lender may close the loan and service the loan. They may either fund it permanently or temporarily with a
warehouse line of credit {{Technical, date=July 2015 A warehouse line of credit is a credit line used by mortgage bankers. It is a short-term revolving credit facility extended by a financial institution to a mortgage loan originator for the funding of mortgage loans. Th ...
prior to selling it into a larger lending pool. The difference between the "Broker" and "Banker" is the banker's ability to use a short term credit line (known as a warehouse line) to fund the loan until they can sell the loan to the secondary market. Then they repay their warehouse lender, and obtain a profit on the sale of the loan. The borrower will often get a letter notifying them their lender has sold or transferred the loan. Bankers who sell most of their loans and do not actually service them are in some jurisdictions required to notify the client in writing. For example, New York State regulations require a non servicing "banker" to disclose the exact percentage of loans actually funded and serviced as opposed to sold/brokered. Brokers must also disclose
Yield spread premium A yield spread premium (YSP) is the money or rebate paid to a mortgage broker for giving a borrower a higher interest rate on a loan in exchange for lower up front costs, generally paid in origination fees, broker fees or discount points Discount ...
while Bankers do not. This has created an ambiguous and difficult identification of the true cost to obtain a mortgage. The government created a new Good Faith Estimate (2010 version) to allow consumers to compare apples to apples in all fees related to a mortgage whether you are shopping a mortgage broker or a direct lender. The government's reason for this was some mortgage brokers were utilizing bait and switch tactics to quote one rate and fees only to change before the loan documents were created. Although ambiguous for the mortgage brokers to disclose this, they decide what fees to charge upfront whereas the direct lender won't know what they make overall until the loan is sold. Also See:
Predatory lending Predatory lending refers to unethical practices conducted by lending organizations during a loan origination process that are unfair, deceptive, or fraudulent. While there are no internationally agreed legal definitions for predatory lending, a 2006 ...
&
Mortgage fraud Mortgage fraud refers to an intentional misstatement, misrepresentation, or omission of information relied upon by an underwriter or lender to fund, purchase, or insure a loan secured by real property. Criminal offenses may be prosecuted in eith ...
Sometimes they will sell the loan, but continue to service the loan. Other times, the lender will maintain ownership and sell the rights to service the loan to an outside mortgage service bureau. Many lenders follow an "originate to sell" business model, where virtually all of the loans they originate are sold on the secondary market. The lender earns fees at the closing, and a Service Release Premium, or SRP. The amount of the SRP is directly related to the terms of the loan. Generally, the less favorable the loan terms for the borrower, the more SRP is earned. Lender's loan officers are often financially incentivized to sell higher-priced loans in order to earn higher commissions.


Secondary market influence

Even large companies with lending licenses sell, or broker, the mortgage loan transactions they originate and close. A smaller percentage of bankers service and keep their loans than those in past decades. Banks act as a broker due to the increasing size of the loans because few can use depositor's money on mortgage loans. A depositor may request their money back and the lender would need large reserves to refund that money on request. Mortgage bankers do not take deposits and do not find it practical to make loans without a wholesaler in place to purchase them. The required cash of a mortgage banker is only $500,000 in New York. The remainder may be in the form of property assets (an additional $2.00), an additional credit line from another source (an additional $10,000,000). That amount is sufficient to make only two median price home loans. Therefore, mortgage lending is dependent on the secondary market, which includes securitization on Wall Street and other large funds. The largest secondary market by mortgage volume are
Federal National Mortgage Association The Federal National Mortgage Association (FNMA), commonly known as Fannie Mae, is a United States government-sponsored enterprise (GSE) and, since 1968, a publicly traded company. Founded in 1938 during the Great Depression as part of the Ne ...
, and the
Federal Home Loan Mortgage Corporation The Federal Home Loan Mortgage Corporation (FHLMC), commonly known as Freddie Mac, is a publicly traded, government-sponsored enterprise (GSE), headquartered in Tysons Corner, Virginia.Fannie Mae The Federal National Mortgage Association (FNMA), commonly known as Fannie Mae, is a United States government-sponsored enterprise (GSE) and, since 1968, a publicly traded company. Founded in 1938 during the Great Depression as part of the N ...
and
Freddie Mac The Federal Home Loan Mortgage Corporation (FHLMC), commonly known as Freddie Mac, is a publicly traded, government-sponsored enterprise (GSE), headquartered in Tysons Corner, Virginia.package loan A package loan is a real estate loan In finance, a loan is the lending of money by one or more individuals, organizations, or other entities to other individuals, organizations, etc. The recipient (i.e., the borrower) incurs a debt and is u ...
portfolios in conformance with the secondary market to maintain the ability to sell loans for capital. If interest rates drop and the portfolio has a higher average interest rate, the banker can sell the loans at a larger profit based on the difference in the current market rate. Some large lenders will hold their loans until such a gain is possible. The selling of mortgage loans in the wholesale or secondary market is more common. They provide permanent capital to the borrowers. A "direct lender" may lend directly to a borrower, but can have the loan pre-sold prior to the closing. Few lenders are comprehensive or "portfolio lenders". That is, few close, keep, and service the mortgage loan. The term is known as portfolio lending, indicating that a loan has been made from funds on deposit or a trust. That type of direct lending is uncommon, and has been declining in usage. An example of a portfolio lender in the US is
ING Direct The ING Group ( nl, ING Groep) is a Dutch multinational banking and financial services corporation headquartered in Amsterdam. Its primary businesses are retail banking, direct banking, commercial banking, investment banking, wholesale bankin ...
.


Improved consumer laws

The laws have improved considerably in favor of consumers. A mortgage broker must comply with standards set by law in order to charge a fee to a borrower. The fees must meet an additional threshold, that the combined rate and costs may not exceed a lower percentage, without being deemed a "High Cost Mortgage". An excess would trigger additional disclosures and warnings of risk to a borrower. Further, the mortgage broker would have to be more compliant with regulators. Costs are likely lower due to this regulation. Mortgage bankers and banks are not subject to this cost reduction act. Because the selling of loans generates most lender fees, servicing the total in most cases exceeds the high cost act. Whereas mortgage brokers now must reduce their fees, a licensed lender is unaffected by the second portion of fee generation. This is due to the delay of selling the servicing until after closing. Therefore, it is considered a secondary market transaction and not subject to the same regulation.


Brokers and client's interests

As of 2007, in the
United States The United States of America (U.S.A. or USA), commonly known as the United States (U.S. or US) or America, is a country primarily located in North America. It consists of 50 states, a federal district, five major unincorporated territorie ...
the federal law and most state laws do not assign a
fiduciary duty A fiduciary is a person who holds a legal or ethical relationship of trust with one or more other parties (person or group of persons). Typically, a fiduciary prudently takes care of money or other assets for another person. One party, for exampl ...
on mortgage brokers to act in best interests of their customers. An exception is
California California is a U.S. state, state in the Western United States, located along the West Coast of the United States, Pacific Coast. With nearly 39.2million residents across a total area of approximately , it is the List of states and territori ...
, where a 1979 ruling of the
Supreme Court of California The Supreme Court of California is the highest and final court of appeals in the courts of the U.S. state of California. It is headquartered in San Francisco at the Earl Warren Building, but it regularly holds sessions in Los Angeles and Sacra ...
did establish fiduciary duties of mortgage brokers.Mortgage Brokers: Friends or Foes?
''
the Wall Street Journal ''The Wall Street Journal'' is an American business-focused, international daily newspaper based in New York City, with international editions also available in Chinese and Japanese. The ''Journal'', along with its Asian editions, is published ...
Online'' May 30, 2007
This means that consumers, in states other than California, may be charged excessive rates and fees and are encouraged to do some shopping around prior to any agreement.


Predatory mortgage lending and mortgage fraud

Mortgage fraud Mortgage fraud refers to an intentional misstatement, misrepresentation, or omission of information relied upon by an underwriter or lender to fund, purchase, or insure a loan secured by real property. Criminal offenses may be prosecuted in eith ...
is when one or more individuals defraud a financial institution by submitting false information willfully. Some mortgage brokers have been involved in mortgage fraud according to the FBI. Predatory mortgage lending is when a dishonest financial institution willfully misleads or deceives the consumer. Some mortgage consultants, processors and executives of mortgage companies have been involved in predatory lending. Some signs of predatory lending include: * Falsifying income/asset and other documentation. * Not disclosing
Yield spread premium A yield spread premium (YSP) is the money or rebate paid to a mortgage broker for giving a borrower a higher interest rate on a loan in exchange for lower up front costs, generally paid in origination fees, broker fees or discount points Discount ...
or other hidden fees BEFORE the settlement/closing. * Failing to provide all
RESPA The Real Estate Settlement Procedures Act (RESPA) was a law passed by the United States Congress in 1974 and codified as Title 12, Chapter 27 of the United States Code, . The main objective was to protect homeowners by assisting them in becoming be ...
documentation, i.e.
Good Faith Estimate A good faith estimate, referred to as a GFE, was a standard form that (prior to 2015) had to be provided by a mortgage lender or broker in the United States to a consumer, as required by the Real Estate Settlement Procedures Act (RESPA). Since Augu ...
, Special Information Booklet, Truth in Lending, etc. so the borrower may clearly understand the mortgage terms and lender policies. * Convincing borrowers to refinance a loan without any true benefit. * Influencing a higher Loan Amount and inflated appraisals (usually in tandem with an appraiser). * Unjustly capitalizing on a borrower's relative ignorance about mortgage acquisition. Another unethical practice involves inserting hidden clauses in contracts in which a borrower will unknowingly promise to pay the broker or lender to find him or her a mortgage whether or not the mortgage is closed. Though regarded as unethical by the National Association of Mortgage Brokers, this practice is legal in most states. Often a dishonest lender will convince the consumer that he or she is signing an application and nothing else. Often the consumer will not hear again from the lender until after the time expires and then they are forced to pay all costs. Potential borrowers may even be sued without having legal defense.


Mortgage brokerage in Canada

The laws governing mortgage brokerage in
Canada Canada is a country in North America. Its ten provinces and three territories extend from the Atlantic Ocean to the Pacific Ocean and northward into the Arctic Ocean, covering over , making it the world's second-largest country by tot ...
are determined by provincial governments. Most provinces require mortgage brokerage companies to carry a provincial license.


Nova Scotia

Mortgage Brokers in Nova Scotia are licensed by Service Nova Scotia and are regulated under the Mortgage Brokers and Lenders Registration Act. Many brokers in Nova Scotia are members of th
Mortgage Brokers Association of Atlantic Canada
More information about the various mortgage programs that are available to consumers can be found a
Mortgage Managers


Ontario

In Ontario, mortgage brokers are licensed by the
Financial Services Regulatory Authority of Ontario The Financial Services Regulatory Authority of Ontario (FSRA; french: Autorité ontarienne de réglementation des services financiers) is a self-funding Crown agency which acts as the financial regulator for the province of Ontario, Canada. Est ...
(FSRA), an arms length agency of the Ministry of Finance. To become licensed an individual must meet specific licensing requirements, including passing an approved course. That course is offered by th
Real Estate and Mortgage Institute of Canada Inc. (REMIC)
ref name="fsco.gov.on.ca"> and the Association of Accredited Mortgage Professionals(CAAMP). CAAMP provides Canadian mortgage professionals with the Accredited Mortgage Professional (AMP) designation – the national designation for professionals in Canada’s mortgage industry. In Ontario there is a difference between a Mortgage Broker and a Mortgage Agent, although they perform much of the same tasks. While the terms Mortgage Broker and Mortgage Agent are similar, and Mortgage Brokers and Mortgage Agents fulfill many of the same functions, it is important note that there is in fact a difference. According to Canadian Mortgage Trends the main difference between a Mortgage Broker is that, "...a mortgage broker is a firm or person licensed to deal in mortgages and employ mortgage agents" while "A mortgage agent is an individual authorized to deal in mortgages on behalf of a mortgage broker. While many attribute these functions to a Mortgage Broker, "A mortgage agent is generally someone who finds the best mortgage for each client based on that client’s income, credit, and property profiles."


British Columbia

In British Columbia mortgage brokers are licensed by the
Financial Institutions Commission Finance is the study and discipline of money, currency and capital assets. It is related to, but not synonymous with economics, the study of production, distribution, and consumption of money, assets, goods and services (the discipline of fin ...
(FICOM)


Default insurance

Throughout Canada, high ratio loans are insured by either the
Canada Mortgage and Housing Corporation Canada Mortgage and Housing Corporation (CMHC) (french: Société canadienne d'hypothèques et de logement) (SCHL) is Canada's national housing agency, and state-owned mortgage insurer. It was originally established after World War II, to help re ...
,
Genworth Financial Genworth Financial is an S&P 400 insurance company. The firm was founded as The Life Insurance Company of Virginia in 1871. In 1986, Life of Virginia was acquired by Combined Insurance, which became Aon plc in 1987. In 1996, Life of Virginia w ...
or Canada Guaranty.


Online mortgage lending in Canada

As of 2017, Canada has seen a move towards mobile and online technology in the mortgage industry. CIBC has created a mobile app that is presently in beta testing. Companies are incorporating digital technology with a strong aim towards consumer awareness against bank products.


Mortgage brokerage in the United Kingdom

Mortgage brokers in the UK are split between the regulated mortgage market, which lends to private individuals, and the unregulated mortgage market, which lends to businesses and investors. Many UK brokerages mediate both types of business. The role of a mortgage broker is to mediate business between clients and lending institutions, which include
bank A bank is a financial institution that accepts deposits from the public and creates a demand deposit while simultaneously making loans. Lending activities can be directly performed by the bank or indirectly through capital markets. Because ...
s,
building societies A building society is a financial institution owned by its members as a mutual organization. Building societies offer banking and related financial services, especially savings and mortgage lending. Building societies exist in the United Kingdo ...
and
credit unions A credit union, a type of financial institution similar to a commercial bank, is a member-owned nonprofit financial cooperative. Credit unions generally provide services to members similar to retail banks, including deposit accounts, provision ...
.


Types of mortgage broker


Tied or multi-tied

Tied mortgage brokers offer products from a single lender, while multi-tied brokers offer products from a small panel of lenders. Many tied brokers are linked to estate agents and will refer the agency’s customers to one of a handful of lenders in exchange for a commission. Mortgage specialists in banks and building societies can also be considered to be ‘tied’ brokers, insofar as they may only offer products sold by that lender.


Whole of market

The
Financial Conduct Authority The Financial Conduct Authority (FCA) is a financial regulation, financial regulatory body in the United Kingdom, but operates independently of the UK Government, and is financed by charging fees to members of the financial services industry. The ...
(FCA) requires that a mortgage broker describes its range accurately to consumers, and stipulates that one of the following disclosures be used to describe the service offered (as appropriate): * "We are not limited in the range of mortgages we will consider for you." * "We offer a comprehensive range of mortgages from across the market, but not deals that you can only obtain by going direct to a lender." * "We only offer mortgages from
umber Umber is a natural brown earth pigment that contains iron oxide and manganese oxide. In its natural form, it is called raw umber. When Calcination, calcined, the color becomes warmer and it becomes known as burnt umber. Its name derives from '' ...
lender(s). We can provide you with a list of these." * "We only offer mortgages from ame of lender(s)" * "We only offer some, but not all, of the mortgages from
umber Umber is a natural brown earth pigment that contains iron oxide and manganese oxide. In its natural form, it is called raw umber. When Calcination, calcined, the color becomes warmer and it becomes known as burnt umber. Its name derives from '' ...
lender(s). We can provide you with a list of these." * "We only offer some, but not all, of the mortgages from ame of lender(s)" * "We only sell bridging finance products from ame of lender(s) We do not offer products from across the mortgage market."


How mortgage brokers make money

Some mortgage brokers charge a fee to their customers. The fees charged vary, but many consumer groups and advisory services suggest that the fees are justified if the broker can expedite the application process and search a wide range of mortgages in order to find a better deal. Some brokers employ a sliding fee scale in order to account for the fact that some applications (e.g. those from customers with historic credit impairments) are more difficult to place – and therefore require more work – than others (e.g. ‘like-for-like’ remortgages). The other means of income for mortgage brokers is commission, which they receive from the lenders whom they introduce to borrowers. Some mortgage brokers make money from a mixture of both fees and commission. This covers the cost of the work they do for both the consumer (to find a suitable product) and the lender (in pre-qualifying the customer and administering the application).


Mortgage regulation

Owner-occupier mortgage products, and by extension brokers of these products, are regulated by the FCA. A regulated mortgage contract is defined in the Mortgages and Home Finance: Code of Business (MCOB) as one which: * Involves the provision of credit to an individual or trustees; * Pertains to a first legal charge on land (excluding timeshare accommodation) of which at least 40% will be occupied by the borrower, trustee or trust beneficiary, or a close relative of any such individual; and * Is not a home purchase plan


The Mortgage Credit Directive (MCD)

Mortgage brokers in the UK are also bound by pan-European legislation, such as the EU
Mortgage Credit Directive The Mortgage Credit Directive (MCD) is a body of European legislation for the regulation of first- and second charge mortgages and consumer buy-to-let (CBTL) lending. It was originally adopted by the European Commission on 4 February 2014 and M ...
. It is the role of UK legislators to incorporate the directive into the existing UK framework. The broader distinction between consumers and businesses adopted within the MCD is, in some respects, contrary to the current UK framework, and as a result some exemptions previously enjoyed in the UK will be phased out. One example is where borrowers or relatives of borrowers will occupy less than 40% of a property, which is currently not considered regulated business; by 2016, such borrowers will be considered consumers. These transactions will therefore come to be regulated.


The Mortgage Market Review (MMR)

The Mortgage Market Review (MMR), a comprehensive review of the UK mortgage market which ran from 2009 to 2012 and came into force on 26 April 2014, resulted in some dramatic changes to the regulated lending environment, most centring on new, stricter affordability requirements and income and expenditure checks. There is also anecdotal evidence to suggest that the amount of time it takes to get a mortgage has significantly increased as a result of the changes. Some mortgage brokers whose in-house underwriting already matches borrowers to appropriate lenders are able to circumvent these delays, making their services more attractive. It is speculated that, because borrowers’ applications are stress-tested on the strength of their ability to make the monthly repayments, increasing numbers of borrowers are opting for mortgage terms exceeding the traditional 25 years. This results in lower repayments but a higher overall interest bill, as well as a longer period servicing debt. According to official figures from the Office for National Statistics (ONS), the percentage of mortgages under 25 years in length fell from 95% to 68% between 2002 and 2012.


Mortgage brokerage in Australia

Mortgage brokers have been active in
Australia Australia, officially the Commonwealth of Australia, is a Sovereign state, sovereign country comprising the mainland of the Australia (continent), Australian continent, the island of Tasmania, and numerous List of islands of Australia, sma ...
since the early 1980s, however they only became a dominant force in the mortgage industry during the late 1990s on the back of aggressive marketing by Aussie Home Loans and Wizard Home Loans. Approximately 35% of all loans secured by a mortgage in Australia were introduced by mortgage brokers in 2008. In March 2012, the share of loans introduced by Mortgage Brokers had risen to 43%. In 2016–2017, mortgage brokers had contributed to $2.9 billion to Australian economy. In 2019, the Mortgage Broker market share has grown to 59% of the mortgage market, however, the future viability of the sector has been cast into doubt due to recommendations of the Hayne Royal Commission. Commissioner
Hayne Hayne is a surname of English origin. Etymology According to the ''Oxford Dictionary of Family Names in Britain and Ireland'', modern names ''Haine'', ''Hayne'', '' Haines'', ''Hains'', ''Hanes'', and ''Haynes'' all in four different medieval name ...
has recommended that lenders cease paying upfront and trailing commission to Brokers and instead, that the consumer pays a yet-to-be determined upfront fee for service. The industry (led by the FBAA and MFAA) leveraged the 2019 Federal Election campaign to convince the Liberal Government to back down from introducing an upfront fee-for-service model. These efforts have been described as a 'textbook case of successful grassroots lobbying'. Mortgage brokers are now regulated by the
Australian Securities and Investments Commission The Australian Securities and Investments Commission (ASIC) is an independent commission of the Australian Government tasked as the national corporate regulator. ASIC's role is to regulate company and financial services and enforce laws to pro ...
. The new national consumer credit protection legislation includes a licensing regime and responsible lending obligations. Mortgage brokers are also required to be a member of an external dispute resolution provider such as the
Credit ombudsman service The Financial Ombudsman Service (FOS) was a member-funded Australian ombudsman service that provided external dispute resolution for consumers who were unable to resolve complaints with member financial services organisations. The Credit and ...
Limited (COSL). Furthermore, some lenders require accredited brokers to be a member of an industry body such as the Finance Brokers Association of Australia (FBAA) or Mortgage & Finance Association of Australia (MFAA). These industry associations demand that brokers complete at least 25-30 of continued professional development each year to maintain their skills and knowledge.


Fees

Australian and New Zealand mortgage brokers do not usually charge a fee for their services as they are paid by the lenders for introducing loans. They are paid an up front commission that is on average 0.66% of the loan amount and an ongoing
trail commission Commissions are a form of variable-pay remuneration for services rendered or products sold. Commissions are a common way to motivate and reward salespeople. Commissions can also be designed to encourage specific sales behaviors. For example, commis ...
that is on average 0.165% of the loan amount per annum paid monthly. These commissions can vary significantly between different lenders and loan products, especially since the commission re-alignments introduced by Australian banks during June to August, 2008 in reaction to the
Subprime mortgage crisis The United States subprime mortgage crisis was a multinational financial crisis that occurred between 2007 and 2010 that contributed to the Financial crisis of 2007–2008, 2007–2008 global financial crisis. It was triggered by a large decline ...
. Although mortgage brokers are paid commissions by the lenders this does not alter the final rate or fees paid by the customer as it may in other countries. Mortgage brokers do not have the ability to charge the customer a higher or lower rate and in return obtain a higher or lower commission. In the event that the loan is paid back by the borrower within 24 months of the loan settlement, mortgage brokers are charged a "
clawback The term clawback or claw back refers to any money or benefits that have been given out, but are required to be returned (clawed back) due to special circumstances or events, such as the monies having been received as the result of a financial crim ...
" fee by the lenders since the loan is considered "unprofitable". The amount is usually 0.66% of the loan amount for loans paid back in the first 12 months and 0.33% for loans paid back in the next 12 months. When this happens the mortgage brokers are sometimes able to charge the customer the amount if they hold written authority to do this. Mortgage brokers don't like to be liable for the fee, but in some case it is unrecoverable. Keep in mind that a standard home loan in Australia is contracted over a 30-year term, with the average loan life being approximately 4–5 years.


Best Interests Duty

Mortgage brokers in Australia are required to put their clients' interests ahead of their own, even if it means their own profit suffers. This is an important element when it comes to choosing a mortgage broker because it ensures the clients' financial objectives and needs are considered.


Mortgage brokerage in Singapore

The mortgage brokerage industry is still new compared to the situation in the US and the UK Not all of the banks in
Singapore Singapore (), officially the Republic of Singapore, is a sovereign island country and city-state in maritime Southeast Asia. It lies about one degree of latitude () north of the equator, off the southern tip of the Malay Peninsula, borde ...
are tied up with the mortgage brokerage firms. The mortgage brokers are mostly regulated by the Singapore Law of Agency. A study undertaken by Chan & Partners Consulting Group (CPCG) shows that the mortgage brokering industry is still largely a new concept to the Singapore financial consumers. However this will set to change as more consumers realize that taking up a housing loan with the mortgage broker does not increase the consumer's cost at all, and can in fact aid them in making a more informed decision. Mortgage brokers in the country do not charge borrowers any fee, rather profits are made when the financial institutions pay the broker a commission upon successful loan disbursement via the broker's referral.


See also

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Subprime mortgage crisis The United States subprime mortgage crisis was a multinational financial crisis that occurred between 2007 and 2010 that contributed to the Financial crisis of 2007–2008, 2007–2008 global financial crisis. It was triggered by a large decline ...
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Loan sale A loan sale is a sale, often by a bank, under contract of all or part of the cash stream from a specific loan, thereby removing the loan from the bank's balance sheet. Often subprime loans from failed banks in the United States are sold by the ...
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Mortgage loan A mortgage loan or simply mortgage (), in civil law jurisdicions known also as a hypothec loan, is a loan used either by purchasers of real property to raise funds to buy real estate, or by existing property owners to raise funds for any p ...
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Fixed-rate mortgage A fixed-rate mortgage (FRM) is a mortgage loan where the interest rate on the note remains the same through the term of the loan, as opposed to loans where the interest rate may adjust or "float". As a result, payment amounts and the duration of ...
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Adjustable-rate mortgage A variable-rate mortgage, adjustable-rate mortgage (ARM), or tracker mortgage is a mortgage loan with the interest rate on the note periodically adjusted based on an index which reflects the cost to the lender of borrowing on the credit markets.Wie ...
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VA loan A VA loan is a mortgage loan in the United States guaranteed by the United States Department of Veterans Affairs (VA). The program is for American veterans, military members currently serving in the U.S. military, reservists and select surviving s ...
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FHA insured loan An FHA insured loan is a US Federal Housing Administration mortgage insurance backed mortgage loan that is provided by an FHA-approved lender. FHA mortgage insurance protects lenders against losses. They have historically allowed lower-income Ame ...
* Mortgage packagers


References


External links


US Department of Housing and Urban Development (US)National Association of Mortgage Brokers (US)Canada Mortgage and Housing Corporation (CMHC)
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New Zealand Mortgage Brokers Association (NZ)
{{DEFAULTSORT:Mortgage Broker
Broker A broker is a person or firm who arranges transactions between a buyer and a seller for a commission when the deal is executed. A broker who also acts as a seller or as a buyer becomes a principal party to the deal. Neither role should be confu ...
Financial services occupations Brokerage firms