SF and Daly City: Broker Shopping
When we were tying to buy a house, I was impressed at how a broker was always on the scene along with the realtor. “I always work with (insert first name of broker here, along with reassuring smile),” the agent would assure me. “This guy’s the best! He will get you the most excellent deal out there.” These claims did, at first, reassure me, as they were meant to do; unfortunately, reassurance was not the only goal. In fact, I didn’t catch on that the realtor and the broker kept appearing together because they were getting something, i.e. money, from their relationship. Thus, the broker may not have been the “best” for me, but was the “best” for the realtor. Indeed, the New York Times reports today that
When home buyers need suggestions about where to find a good mortgage broker, they often turn to real estate agents, but, as with any recommendations, these referrals should be approached carefully.
Borrowers are often not aware that the biggest national and regional real estate brokerages, like Century 21 or Coldwell Banker, have mortgage brokerage operations of their own.
Mortgage brokers say real estate agents sometimes steer clients to in-house mortgage brokers without making such connections clear, thereby leading inexperienced buyers into costlier loans than they could have found if they had shopped around.
To be fair, “Lenders are required to disclose such relationships early in the mortgage process in good-faith-estimate documents. However, “mortgage industry executives say that even when those relationships are disclosed, borrowers often do not understand why this matters. One answer is that when a company knows a prospective borrower is not comparison shopping, it doesn’t have to make its best offer.”
This situation then is not in the buyer’s best interest. In fact, the “National Association of Mortgage Brokers said one real estate company circulated a memorandum to its agents requiring them to refer clients to its in-house brokerage. Another company rewarded the top referring real estate agents with scrip that could be converted into vacations.” Again, in fairness, we should recognize that “brokers affiliated with real estate agencies or home builders are no better or worse than independent mortgage brokers.” Still, if the broker is paying agents an under-the-table referral fee, chances seem good that ”the broker will probably make up for that fee by charging the borrower higher rates or fees.”
This is a real issue for buyers since mortgage industry analysts estimate that “more than 80 percent of home buyers follow their real estate agent’s recommendation when choosing a lender,” and although the outcome is “often not bad ( According to a recent survey by J.D. Power & Associates, a majority of borrowers who found loans through their home builders’ lending subsidiaries said they were satisfied),” certainly the clear conflict of interest such an arrangement presents should give the buyer pause.
How can you be smarter about your loan?
Debra Killian, president of Charter Oak Lending Group in Danbury, Conn., said that when weighing a broker’s recommendation, borrowers can protect themselves against possible conflicts of interest by asking questions. “Borrowers should ask the agent if the person they’re referring works for an affiliated company,” she said.
In other words, treat your loan just as you do with the home itself: shop around.
photo credit: ibermortgages
