January 28, 2004
Here are some
guidelines for dealing with a UMB.
Your
Shopping Focus: When you deal
with a UMB, your major focus should shift from shopping the price of the
mortgage to shopping for
a broker. Once retained, the UMB will shop
the market for you. Brokers
can shop lenders far better than you, among other reasons, because they are in
continuing contact with many lenders.
Don't Be
Deceived by Price Quotes: You can ask for a
mortgage price quote on the day you interview the UMB, but don't base any
decisions on it. The price quote you get from a UMB is
unlikely to be the best one you hear, because it will be an honest quote.
Honest brokers can't compete with "sunshine blowers" who ensnare
consumers by quoting prices they cannot actually deliver.
By
the time you lock with a sunshine blower, the lower price will have
evolved into a higher price. They have a dozen tricks they can use to raise the price once they have you
on the hook. Check out Protecting
Against Mortgage Broker Tricks.
Keep in mind as
well that prices can change every day, and even within the day, so
the price quoted, even if honest, will reflect the market only at that point in time. What
matters is the price at the time you lock. The UMB will give you the best
wholesale price she can find at that time.
Pricing
the
Broker's Services:
For their services, UMBs charge a
fee that is negotiated at the beginning. Once set, it won't be
changed. You are protected against all the tricks of the mortgage broker
trade.
When borrowers deal with
conventional (non-UMB) brokers, they usually are not aware of the broker's fee
at the beginning because the fee is included in the quoted price. The fee
is implicit, not explicit, and the broker is not bound by it. Hence, from
the day of the initial price quote to the day the loan closes, you must be on
your guard.
The UMB
may price in any manner: a fixed dollar amount, a percent of the loan, an
hourly charge for the broker's time, or a combination of these.
Most brokers, however, charge a percent of the loan amount.
The UMB's fee will typically
be a significant 4-figure number. You shouldn't let that faze you.
For one thing, the UMB is going to pass through directly to you the
wholesale rates received from lenders. These rates typically
are about 3/8% below the retail rates quoted by lenders. This
is the equivalent of an upfront charge of about 1.5 points, or 1.5% of the
loan amount. In many if not most cases, this saving will completely
cover the UMB's fee. Furthermore, the UMB can save you a lot of
money in other ways. Read Why
Select an Upfront Mortgage Broker.
Bear in mind that a one-point
fee is $5,000 on a $500,000 loan but only $500 on a $50,000 loan.
Hence, if the UMB's fee is expressed in points, expect it to be higher on
smaller loans. You should also expect to pay more if the UMB
anticipates that you will be a "tough case" -- for example, you
have credit problems that must be cleared up or you can't document your
finances.
Other
Factors in Selecting a UMB: In
selecting an UMB, price is not the only consideration � anymore than it
is in selecting a physician, a lawyer or an architect.
You should feel free to query the broker about qualifications and
experience. If their price seems high, ask why they consider their
services to be worth that much. Broker fees (all brokers, not UMBs)
average about 2% of loan amounts, though it is smaller on large loans and
higher on smaller loans.
It's also
good to have referrals but these
are
not easy to come by in the home loan market, except from real estate sales
agents. Sales agents select
their brokers largely for their reliability.
A UMB referred by a sales agent would be a good bet.
Even if the referred broker is not a UMB, the broker might deal
with you on UMB terms.
Be Prepared: UMBs
may
want to have information about the transaction before quoting a
price. The
information may be provided in an interview, a questionnaire, or in some
other way. Borrowers can
facilitate the process by arming themselves beforehand with basic
information about the deal.
If they
have purchased or contracted to purchase a house, they should bring the
documents evidencing the purchase. If
they are refinancing, they should bring information on the current status
of the existing mortgage, including the loan balance.
In both cases, they should bring information on current income from
all sources, total available cash, and all current debts including the
balance and payment.
The
Customers Commitment to the Broker:
UMBs deserve upfront customers. Upfront customers don't apply for loans with more than one
broker. It is
deceitful, it wastes your time as well as the broker's, and it is
unnecessary. There is nothing
wrong with shopping brokers, but after selecting one you should stick with
that broker. If that broker
fails to provide adequate service, you terminate the relationship and
start anew with another broker.
Consumers
dealing with conventional brokers don't know the broker's fee until after an application is
submitted, which provides some excuse for submitting multiple
applications. (See
Is
it OK to Submit Two Applications?). But
consumers dealing with UMBs know the broker's fee upfront, and therefore
have no reason to practice this deceit.
Upfront
consumers meet their obligation under a rate lock.
When a lender locks the loan, both parties are committed.
The lender is committed to delivering the loan even if interest
rates jump. The borrower is
committed even if rates drop. A
borrower who wants to benefit from a lower rate while retaining protection
against a higher rate needs to negotiate a �float-down�, as opposed to
a lock. A float-down will
cost a little more.
Converting
a MB Into a UMB for Your Deal: It
will be awhile before I have a list of UMBs in every state.
Until then, you can copy the UMB Commitment from this web site, and
ask the brokers you approach if they are willing to do business with you
in this way. They
are unlikely to say �no�, especially if they realize that you fully
appreciate the value that brokers provide and won�t gasp when they quote
a significant price.
Disclaimer:
The Mortgage Professor cannot warrant the quality of service provided, or
the reasonableness of the prices charged, by UMBs.
Recourse:
UMBs
are
listed on this web site, with their name location, and links to their web
sites. Any consumer who has
reason to believe that a listed broker has disregarded its commitment
should send me a written statement indicating the reason for the belief,
along with a copy of the
broker's written price quote,
and the final closing statement (HUD1).
If
there was a misunderstanding of the broker's fee based on oral
exchanges, don't bother me with it. I don't have time to deal with
"he said, she said" problems. You should have the broker
sign off on the fee in writing. Here is a form you can
use.
BROKER
COMPENSATION
The total
compensation to [Name of UMB],
including any rebates from the lender, will be:_____________
A separate
processing fee will be:____________
Signature of
UMB
Signature of borrower
_______________
__________________
Date:
Date:
Copyright
Jack Guttentag 200 4
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