How to protect yourself from mortgage brokers who want your money.

About 60% of all mortgage loans go through mortgage brokers and most buyers think the broker’s job is to represent them in finding the best deal at a good company. In most states, this is not true.

The fact is that your mortgage broker does not work for you. They are under NO obligation to get you the best deal. They are sales people who are selling a product, and they tend to sell you the product that brings them the most commission. Under current law that is perfectly legal in most states. (Some states, like Califonria, have laws requiring mortgage brokers to act in their customer’s best interests.)

I have talked to many people who trusted mortgage brokers, only to end up with a lousy deal. In one case recently I talked to a woman who was promised a lower monthly payment if she refinanced. The loan she got had a higher interest rate that was scheduled to rise rapidly after the first year. The only way the payments were made lower was by using “negative amortization.” Every payment she made caused her principle to go UP as unpaid interest was added to the loan.

The Wall Street Journal reports that some states and some parts of the federal government are thinking about changing the law to force brokers to put customers first, but until that happens there are some things you can do.

One thing is to not to use a mortgage broker. Go directly to a few banks and see what they have to say. Try lending sites on the internet. If you do not want to spend the time to shop around, you should find a mortgage broker that will take a flat fee for their services. That way, they have no incentive to sell you a deal that brings them higher commission.

There is a list of brokers who will work for a fixed fee at the trade association web site, www.upfrontmortgagebrokers.org

For mortgage basics click here.

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