Unit 12 Mortgage Brokerage

Who Pays the Mortgage Brokers and Bankers

- They are paid by the banks. -Everything they disclose is put in the Good Faith Statement (GFE) which is done up within 3 days of receiving a loan application. It follows a certain guideline of accuracy. Most of the numbers need to be accurate (very close to the penny). -A GFE must be provided to the customer by a mortgage lender or broker as required by Real Estate Settlement Procedures Act.

When to lock in rates?

-You cannot lock in an interest rate reasonably unless you really know when a closing date really is - What happens if they lock in and the rate expires and you still didn't close because there were some issues? Well now you have a rate that expires. And now they need to extend their interest rate which can be very stressful.

Where can one get a mortgage?

-can go to a commercial lender, a savings and loan, a credit union. They can go to a mortgage banker or a mortgage broker - the key is to have a good relationship with a mortgage loan originator

Dual Agency Disclosure Under The Banking Law

When a mortgage broker is also a real estate licensee, the potential for dual agency exists as well. For example, a buyer asks the listing agent, who represents the seller in a transaction, if he or she could arrange financing for the purchase of that property. If the listing agent were to accept this role, he or she would be entering into a dual agent relationship. We have already learned that prior to the creation of any dual agency two elements must exist: (1) the agent must give full disclosure to all interested parties to the transaction prior to the creation of the dual agency, and (2) the agent must subsequently receive the informed consent of all interested parties to the transaction.

Requirements And Responsibilities Of A Mortgage Broker

mortgage brokers introduce lenders and borrowers to each other for a fee. In order to become licensed as a mortgage broker, the individual or entity must -register with the New York State Banking Department; -have no less than two years' previous experience in the analysis of credit; -have underwriting education or experience (Licensed real estate brokers and attorneys need not show experience or education; however, licensed salespersons must have two years' prior experience in the business of residential mortgages.); -supply credit reports; and -supply fingerprints for background checks. The license is for one year and is renewable; the fee for the license is $500.

mortgage broker vs mortgage banker

- Both mortgage brokers & bankers have to be licensed and renew it every year. NMLS does their licensing. -Mortgage brokers charge fees based on fee agreements, usually consisting of a percentage of the borrowed amount or a flat fee. In a lending transaction, a fee agreement is a compensation agreement that a borrower will enter into with a mortgage broker. In exchange, the mortgage broker assists the borrower in the placement and origination of funds with a lender. The fee agreement normally occurs simultaneously to that of the preapplication process (preapproval of the borrower). They introduce and arrange financing (for qualified borrowers seeking financing) with willing lenders and also handle the necessary loan application process. -A mortgage banker is an individual or entity that is licensed by the New York State Banking Department with the ability to originate a loan to a qualified borrower or borrowers. Mortgage bankers utilize their own funds, have their own line of credit, generally comprised of borrowed funds, to originate loans. Can also act as a mortgage broker if they want to. Financing may be in the form of either short-term or long-term loans.

The Loan Application Package

- The most important document is the loan application also known as the 1003. That is a standard Fannie Mae/Freddie Mac form. - The other important form is the pre-application fee agreement. It is a standardized form. It lays out the job of the broker/lender/banker, stating they are working as a third party on the customer's behalf in clearing them for getting a loan, working on locking in their interest rate and getting them to closing. Also outlines the fees, appraisal, and credit report. - Brokers and bankers are allowed to charge upfront only: the actual cost of the credit report and the appraisal. - If you are acting as the RE agent and mortgage broker or you have an add'l job, this should be disclosed to the customer in a Dual Agency Agreement and the borrower must agree to it before you move forward with anything else. - The buyer's & seller's attorneys will arrange the closing date.

cont'd

-A pre-approval is needed to show commitment on the buyer and show that he/she is financially qualified. Better and preferred over a pre-qual letter. Can be used up to 60-90 days. - Commitment letter- a property is needed before a commitment letter can be drawn up. Once your client finds a property, signs contracts during appraisal, you get the commitment letter, order the title report the lien search, whatever you need and you can literally close within 3 weeks -30 days if you had to. - Typical closings from start to finish can be 45-60 days. For a condo or coop, it can take longer than 60 days, depending on the board.

Terms

-Mortgage Banker - A company, individual or institution that originates mortgages. Mortgage bankers use their own funds, or funds borrowed from a warehouse lender, to fund mortgages. -Mortgage Broker - An intermediary who brings mortgage borrowers and mortgage lenders together, but does not use its own funds to originate mortgages. A mortgage broker gathers paperwork from a borrower, and passes that paperwork along to a mortgage lender for underwriting and approval. The mortgage funds are then lent in the name of the mortgage lender. A mortgage broker collects an origination fee and/or yield spread premium from the lender as compensation for its services. -Pre-approval - An evaluation of a potential borrower by a lender that determines whether the borrower qualifies for a loan from the lender, or the maximum amount that the lender would be willing to lend. - Pre-qualification - A process whereby a loan officer takes information from a borrower and makes a tentative assessment of how much the lending institution is willing to lend them. - Pre-application and Fee Agreement - A form used between mortgage brokers or mortgage bankers and a home buyer that provides certain disclosures prior to the application of a mortgage. -Mortgage Broker Dual Agency Disclosure Form - A banking department form required when a person is acting as a mortgage broker and a real estate broker in the same transaction. -Mortgage Commitment - A written notice from the bank or other lending institution saying it will advance mortgage funds in a specified amount to enable a buyer to purchase a house. -Lender Rebate - A payment to a mortgage broker by a lender. -Non-conforming Loan - A loan that fails to meet bank criteria for funding. -Rate Lock - An agreement between a borrower and a lender that allows the borrower to lock in the interest rate on a mortgage over a specified time period at the prevailing market interest rate. -Underwriting - The process by which a lender decides whether a potential creditor is creditworthy and should receive a loan.

Types of Financing

Debt Financing- most common form of borrowed funds. The debt placed on the property is combined with the borrower's down payment (or initial investment, as it is sometimes called) to equal the purchase price required by the sale. The loan would be comprised of two components: borrowed funds (loan amount) and borrower funds (down payment). In traditional residential transactions (the sale or rental of a property containing four or fewer units intended for dwelling purposes), the maximum debt financing ratios would break down to 80 percent on borrowed funds and a 20 percent borrower-funded down payment. There are programs that provide for greater than 80 percent debt financing. However, in these transactions, the borrower is required to purchase private mortgage insurance (PMI).

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Equity Financing (Mezzanine Financing)- When borrowing occurs on real property, the lender will originate the loan amount as either the purchase price or the appraised value, whichever is less. -On large commercial development or acquisition transactions, there are times when the borrower may have insufficient funds necessary to fulfill down-payment requirements. In these situations, he or she may seek equity financing to narrow the gap. -Equity financing, or mezzanine financing, is the use of borrowed funds to help the borrower fulfill down-payment requirements. -The need to borrow funds to satisfy the down-payment requirement most often occurs as a result of one of two circumstances: (1) outright shortage of funds required to meet down-payment requirements or (2) a property's appraised value at the time financing is sought falls short of the borrower's anticipated value amount or purchase price. (This usually occurs when premiums are paid on purchase prices that are not supported by either income or comparable sales.)

Real estate brokerage

In residential and commercial real estate brokerage, a transactional broker deals primarily with arranging terms of a purchase or lease transaction.

The Role Of A Mortgage Broker In A Real Estate Transaction

The purpose and role of the mortgage broker is to obtain a mortgage commitment by which a lender issues a loan commitment letter to the borrower to demonstrate willingness to fund the loan. Generally, these loans tend to be nonconforming loans. A nonconforming loan is any loan that does not conform to or meet the requirements for purchase on the secondary market by either Fannie Mae or Freddie Mac. -The role of the mortgage broker includes the following activities: 1.) Analyzing the financial capability of the borrower for the purpose of determining preapproval or preapproved status (which allows the mortgage broker to determine the creditworthiness and ability to repay on the part of the borrower and the likelihood of the borrower's ability to originate a loan with a lender). A preapproval loan is a pending loan in which all of the underlying documents are in file and there is a strong probability that there are no credit or income issues stopping the loan from closing. It does not necessarily mean that the file has been underwritten by the lender that will commit to provide the funds for closing. Prequalification refers to a pending loan in which a mortgage broker believes that, based on a preliminary interview and a credit report, the borrower will probably (subject to verification) be able to meet the loan requirements of a lender—assuming the borrower is telling the truth about his or her financial situation and income status. 2.) Preparation, handling, and submission of the preapplication loan papers (which aids the mortgage broker in arriving at a determination of preapproved status). The fee agreement normally occurs simultaneously to that of the preapplication process (preapproval of the borrower).

A mortgage broker is...

is an individual or entity that is registered by the New York State Banking Department with the ability to place, negotiate, solicit, and process residential or commercial mortgage loans. These services are performed for a fee. The fee may be paid by the borrower or the lender. A mortgage broker will assist borrowers in obtaining financing necessary to conclude their transactions. Mortgage brokers will arrange financing in the following types of real property transactions: Acquisition Gut renovation Conversion Construction/development Refinancing of an existing mortgage on owned property -Loan financing will fall into two primary categories of debt: debt financing and equity financing. - a third party originator. They do not have a line of credit, they do not use their own funds to lend out a mortgage. - They cannot act as mortgage bankers! They bring the prospective borrower to the lender and get a fee (like a commission) for it.

Mortgage broker vs. banker cont'd

to qualify for mortgage banker licensing, an individual or entity must have: -a net worth of not less than $250,000; -an open line of credit of not less than $1,000,000 provided by an insurance company or institutional bank; -posting of a surety bond in an amount no less than $50,000; -five previous years' experience in the business of originating residential loans; -an honest and trustworthy character; and -a current fingerprint card on file with the banking department in order to conduct a background check. The license is issued with a one-year term for a fee of $1,000 per term. When financing is funded on a long-term basis, these loans are subsequently sold to investors (in many cases, insurance companies) that purchase these types of loans.