Prospective buyers going for broker

Mortgage brokers account for more than half the mortgages as buyers increasingly turn to them to land the best deals

December 18, 2005|By KAREN NITKIN | KAREN NITKIN,SPECIAL TO THE SUN

Forty-four years ago, Paul and Dolores Magnaterra turned to their local bank, Rosedale Federal Savings and Loan, for a mortgage when purchasing their home in Glen Arm, Baltimore County.

Last year, when they took out a $150,000 mortgage on the same home, they used a mortgage broker, Charles DiPino of Universal Trust Mortgages, who found them a 6.3 percent interest rate for a 30-year loan, no points.

"I know his father," said Paul Magnaterra, who took out the mortgage to help pay medical expenses for himself and his wife. "You look for integrity when you deal with something like this."

Mortgage brokers, whose profession didn't exist when the newlywed Magnaterras first purchased their four-bedroom home for under $30,000, account for more than 60 percent of the mortgage deals in the nation, according to David Olson, president of Wholesale Access Mortgage Research and Consulting, a Columbia-based firm that tracks such transactions.

That's just one indication of how much the home loan business has changed. When the Magnaterras bought their home, they followed what was then a typical pattern - going to a local savings and loan.

Now banks and brokers compete fiercely in what has become a huge market. Last year, homebuyers took out $1.3 trillion in new mortgages and another $1.5 trillion in refinancings, according to the Mortgage Bankers Association.

With rates rising and home sales predicted to slow next year, some shakeout in the mortgage business is expected.

The popularity of mortgage brokers - whose ranks have mushroomed since post-9/11 interest-rate cuts started the housing boom - stems largely from the difference between their role and that of lenders, experts say. Mortgage lenders directly put up the money for a house and can either hold the mortgage in a portfolio or sell it on the secondary market. Brokers, on the other hand, serve as middlemen, working with a variety of lending sources to match borrower and lender.

Because brokers don't work for a single financial institution, they can shop around, said Olson. "A broker represents virtually everyone in the market, and a lender just represents himself, and you usually have many fewer choices," Olson said.

Yet banks have their place as mortgage lenders.

Brokers, like middlemen, "can have middlemen fees," said Clint Tsao, a loan officer with First Mariner Mortgage. "We have our lender fees like everybody else, but since we deal directly with our lenders, we don't have to add an extra fee."

Also, many bank-affiliated loan officers deal with longtime checking and savings account customers, unlike brokers who typically don't have a continuing relationship with their clients, said Bill Ariano, a loan officer in the residential division for Chesapeake Bank of Maryland, which has seven branches in the Baltimore area. "Most of our business comes primarily from our customers," he said.

While banks make their money on the "spread" - the difference in the interest they pay depositors and what they charge borrowers - brokers get paid through the "yield spread premium," basically a markup on the wholesale price of the loan. A source of discomfort for some is that mortgage brokers are free to set their own markups, which are rolled into the rate and therefore hidden from buyers.

On the other hand, brokers might have an advantage over banks in that they know which lenders specialize in certain types of loans, such as mortgages for first-time buyers or those with spotty credit. That has raised questions of whether brokers are pushing buyers toward more house than they can safely afford, but others argue that the final decision of whether to make the loan belongs to a lender.

"There are definitely some larger shops that are well established, know the process, know how to move you through, find the loan that's right for you," said Tom Shaner, executive director of the Maryland Association of Mortgage Brokers, which has about 1,500 members.

"But there are others that are maybe too focused on their own bottom line. There are a lot of cowboys and cowgirls out there, and that is definitely a problem," he said.

On the plus side, said Olson, brokers tend to cater to their customers more than bankers. "A broker will actually come to your house and work with you more. ... They typically represent many more products, they work evenings and weekends, and you end up typically getting a better deal."

In comparing brokers and bankers, "I wouldn't want to say one's better than the other," said Gerry Glavey, a Housing and Urban Development official with jurisdiction in 16 states, including Maryland. "I would say with any lender, look at all the fees that are being charged."

Mike Fratantoni, senior economist with the Mortgage Bankers Association, said banks work with brokers to get their products to as many customers as possible.

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