Transparent Brokerage Fees Are An Elephant Slayer
Transparency in mortgage brokerage is a concept that is well underway. Mortgage brokers have always been required to disclose both borrower-paid and lender-paid compensation, on the good-faith-estimate and HUD-1 settlement statement, but rarely used disclosure as a selling feature to customers. Regulators are going to require a negotiated flat-fee agreement and wholesale lenders are proactively implementing that practice today. Mortgage brokers can beat both to the punch.
There is nothing to fear.
Jack Guttentag pioneered this concept, years back, when he formed the Upfront Mortgage Brokerage Association. Guttentag, a well-known industry author and former Wharton professor, extended the transparency concept to lenders, as well. Professor Guttentag’s credibillity was questioned when he proposed a government regulated price-fixing scheme for mortgage brokers (on InmanNews) and his influence waned with the industry.
Jeff Corbett, a self-described radical consumer advocate, demonstrated how his prior-fee negotiation thrived when he owned a mortgage brokerage. While Jeff ruffled industry feathers, he taught many mortgage brokers that our superior selling proposition to direct lenders is that we don’t hide the origination profit in a loan. Jeff showed me how mortgage brokers are uniquely suited to become natural “mortgage fiduciaries” to customers.
The issue, as I see it, is that customers never really find out EXACTLY how much a mortgage brokerage makes until the final HUD-1 Settlement Statement is issued. That post-facto discovery then plants a nagging question, in the back of the consumer’s mind, and becomes an elephant in the room for their next mortgage originator.
Shoot that elephant in the room dead before he breaks all the furniture.
Discuss the difference between wholesale rates and retail rates. Explain how mortgage brokers get money at wholesale and “mark it up” so that the retail offering is consistent with direct lenders’ offerings.
Explain that ONLY a mortgage broker can act as a “true fiduciary”. Mortgage brokers negotiate with the “secretive” banks, on behalf of the customer, to secure terms more favorable than the banks would offer that customer directly. This is actually quite simple if you live near a Bank of America branch. Take a picture of its lobby sign, displaying the retail mortgage rates, and compare it alongside the Bank of America wholesale rate sheet. Folks that have a Bank of America checking account actually gasp aloud when they see this variance.
Select the rate/closing cost proposition and lock the rate for the customer, letting him or her see 2-3 wholesale lender rate sheets. Have the customer sign the rate agreement and the mortgage brokerage fee agreement. I use my Advisor’s Insight desktop-sharing portal for this and have the customer fax the signed rate lock and brokerage fee agreements on the same day.
The customer knows what your compensation is, understands that it doesn’t add any extra costs to him or her, and (most importantly) is a witness to the process. That transparency diffuses any future problems that might arise with lock extensions or newly discovered loan level pricing adjustments, in underwriting. More importantly, your mortgage brokerage fee is never questioned by the customer if the terms are changed in underwriting.
Mortgage brokers should ALWAYS position themselves as customer advocates. Mortgage bankers continue to lose credibility in the customers’ eyes; let’s use that lost trust against them when we compete. If we always sit on the same side as the table as the customer, who can be against us?
Well…maybe the banks but that’s a whole different article.
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