By Jack Guttentag
Saturday, April 12, 2008
This is the second of two articles on what makes a good mortgage broker.
A good broker will not quote lowball prices. Accurate pricing depends on a number of characteristics of the borrower, property and transaction. If they are not known or not used, a price cannot be accurate. Loan originators who quote the best prices possible, and sometimes even better than the best possible, to rope in customers are lowballing.
Avoid any broker who quotes a price without first asking you about loan size, down payment, loan purpose, type of property, use of property, state, credit score, and documentation of income and assets.
Don't tempt a broker to lowball by requesting a price on the telephone.
A good broker tries to find the best price available for your deal. That can be tedious work. Brokers get their prices from wholesalers in complicated price sheets, all of which are formatted differently, making comparisons difficult. Further, while pricing a loan, the broker must also be mindful of getting the loan approved.
There is no good way to monitor this, but you can ask the broker to show you rate sheets from the lenders he checked. That is not so that you can compare prices, which would require a lot of instruction, but simply to verify that the information is there.
Good brokers are masters of detail. Mortgages have many details that must be attended to before a loan can close. Overlooking even one can delay the closing, which could be costly to the borrower.
Good brokers avoid that by using a checklist. Ask to see the checklist, but don't expect to be able to keep it.
Good brokers keep their clients informed. Failure to do so is one of the most frequent criticisms of brokers I hear from borrowers, especially on transactions in which borrowers are faced with firm closing dates. Brokers often do not let borrowers know that matters are proceeding on schedule.
Negotiate an agreement with a broker on both the type and frequency of communication.
Good brokers attend closings when necessary. It may not always be feasible because of distance, and sometimes it isn't necessary because the borrower has been through the drill before. But if the borrower is a novice, having the broker available to help explain things is a major source of comfort.
If relevant to you, ask whether the broker will attend the closing.
Good brokers obtain all documents from lenders before closing. That gives borrowers an opportunity to read them at their leisure and clarify any issues.
Ask the broker if you will have access to the final documents at least two days before the closing.
Good brokers are experienced. Mortgage transactions are complicated; there is much to learn, and brokers learn most of it by doing it. While more states are moving toward requiring examinations for licensing, the rules are spotty and cannot be relied on. It is still possible for a borrower to encounter a broker who a week earlier was flipping burgers.
Ask brokers to summarize their work experience over the past 10 years.
Good brokers can communicate effectively with borrowers. Poor brokers frequently slip into jargon because they are accustomed to it and are insensitive to the client's lack of comprehension. I never fail to be amazed at mail I receive from borrowers asking me to explain things brokers told them. A broker who can't communicate well combined with a borrower afraid of looking stupid is a recipe for trouble.
Don't let a broker assume that you understand something when you don't. Mortgages are complicated, but they are not beyond the comprehension of someone with average intelligence if they are explained properly. If you don't understand what you are being told, it is because of the poor communication skills of the broker. Try another one.
Good brokers are straight with their clients: Here are some brokers' statements that indicate they are not being straight. If you hear any of these, head for the door:
· "I have a 1.5 percent mortgage for five years."
· "Don't worry about the rate increasing in two years; I will be there to refinance you into a lower rate before that happens."
· "Don't worry about my fee; it's being paid by the lender."
Jack Guttentag is professor of finance emeritus at the Wharton School of the University of Pennsylvania. He can be contacted through his Web site, http://www.mtgprofessor.com.
© 2008 Jack Guttentag
Distributed by Inman News Features