It is increasingly likely that anyone seeking to finance or refinance a home may be planning to do so through a mortgage broker. The Federal National Mortgage Association, the nation's largest investor in home mortgages, estimates that by the end of 1991 about 37 percent of all mortgages it is financing originated through brokers, compared with 27 percent in 1989.
A mortgage broker acts as an intermediary between borrower and lender, seeking the best rates and terms for the borrower by shopping among many lenders and helping compile the documentation needed to qualify the borrower.
The use of mortgage brokers for residential transactions dates to the recession of the early 1980s, when mortgage lending ground to a halt.
Some institutional lending officers thrown out of work began offering to bring in to their former employers' and other bankers' home-buying customers and handle all the loan-origination paperwork in exchange for a percentage of the origination charges. Some estate brokers followed suit, viewing it as a way to earn an extra commission.
However, so many people with questionable credentials began rushing into the business and controls remained so limited that regulatory agencies began receiving an avalanche of complaints about shoddy dealings -- the most common being upfront fees charged for loans that never materialized.
As a result, 34 states now license mortgage brokers to regulate conduct and set a minimum level of proficiency. Further, the 15-year-old National Association of Mortgage Brokers has been working to raise industry standards and instill a stricter code of ethics.
Even so, sentiment remains mixed over using a mortgage broker. Consider, for example, the contrasting experiences of William and Victoria Masters of Manhattan and Beth Carpenter of Stamford, Conn.
Mr. and Mrs. Masters, who work long hours in television production, turned to a broker because they did not have time to shop for a loan.
But they maintain that their application for a $225,000 loan was delayed so long by the broker that it nearly cost them the triplex apartment they were buying in lower Manhattan.
With no approval in sight and no apparent reason for the holdup, Mr. Masters said, they decided to withdraw their application and seek a lender directly. They got a commitment in a few days, he said -- but it took months to get the broker to return their $500 in application fees.
Beth Carpenter, on the other hand, says she might never have gotten a low-cost, fixed-rate $90,000 loan had she not used a mortgage broker. A single mother on a tight budget, she had been turned down for a fixed-rate loan by the bank where she normally does business.
The bank had been willing to provide only a variable-rate loan. Unwilling to accept this because she feared future fluctuations in payments, Ms. Carpenter contacted a mortgage broker, who persuaded another lender that Ms. Carpenter was indeed qualified for the loan she sought.
All this suggests that the use of brokers should be approached with caution, but that it also holds potential. Bankers confirm that a reputable broker can be valuable when borrowers are too busy to complete forms themselves. "We will even go to your house," said Joanne Satmary, executive vice president of the Source Mortgage Group in Fairfield, Conn.
Mortgage brokers are also useful when a borrower needs guidance in selecting the most suitable mortgage and filling out forms. And they can be crucial when a borrower's personal financial circumstances or the property are problematic.
"Only last month we were able to show a banker that if he had included the borrower's dividend income in his calculations, the man would have qualified," Ms. Satmary said. "We're the borrower's advocate."
Even so, a mortgage broker should be chosen with care. "We still get" complaints, said David Tedeschi, a spokesman for the Connecticut Department of Banking, echoing the views of officials in other states.
One safeguard is to make sure the intended broker is licensed, where applicable, and a member of the National Association of Mortgage Brokers.
Even better, look for a broker who has ever been an officer of a local chapter. For a referral, call the association at (602) 992-6181 or write: NAMB, 706 East Bell Road, Suite 101, Phoenix, Ariz. 85022.
The association can also provide information about its standards. Jill Hoogendyk, the associate director, said borrowers should also ask for a detailed accounting of estimated fees in advance.
The only initial fees the broker should request, she said, are the $300 to $500 needed to process an application and do an appraisal and credit check. The subsequent charge -- normally 1 to 1 1/2 percent of the loan amount -- is due when the loan has been granted by a lender, known as "the commitment." But even this charge, she said, is normally payable only on closing.