Preferred Lenders

Before making a loan application with a Real Estate Agent's or Builder's preferred lender, consider this.

1. A Real estate agent recommends a mortgage lender whom he/she describes as experienced in closing loans. You go to the lender, and don't bother shopping around. That probably is not be a good choice. You have a right to shop for your lender and to be informed of any business relationship between the real estate agent and the mortgage broker.

2. You want to purchase a new home and the builder says that you must use their preferred lender. And if you do they will throw in a special package for your home that includes a stainless refrigerator, etc. Should you go with the builder's preferred lender?

Again you have the right to choose your lender and to be informed of any business relationship between the builder and the preferred lender. Odds are you will be paying for the ‘special package’ in some way whether it be a higher interest rate, higher loan fees, etc.

A federal law passed in 1974, and updated with new rules in January 2010, prohibits referral fees, sharing fees (known as “fee splitting”), or giving anything of value, in any mortgage that could end up being sold to Fannie Mae or Freddie Mac, or being underwritten or guaranteed by other federal agencies. Called the Real Estate Settlement Procedures Act, or RESPA, the law also requires disclosures of affiliated or shared ownership businesses and a good-faith estimate on closing costs.

Many Real Estate agents and builders feel they can get around the RESPA rule by entering into a MSA or Marketing Service Agreement between them and a lender. A you scratch my back and I'll scratch yours arrangement. The problem with this is the borrower usually ends up paying for the costs incurred in the agreement in higher interest rates and loan fees. This is why the CFPB, Consumer Finance Protection Board, ruled that MSA's are illegal and a violation of RESPA earlier this year 2017.

When you receive a recommendation for a mortgage lender, you still need to do your homework. Ask if the real estate agent or builder and the mortgage company are affiliated in any way. Meet the brokers or bankers in person, if possible, and ask about their professional background and credentials. It's worthwhile to know why the referral is being made. Is it because the company is affiliated to the agency? or because the mortgage professional has a great track record of closing deals?

Ask yourself, “whose best interests are really being protected?”

The bottom Line is the most important factor to consider when choosing a mortgage lender is not the interest rate, and it's not the loan fees. Most lenders charge about the same rate. They have access to pretty much the same sources of money. All national wholesale lenders compete against other wholesale lenders, and their rates are highly competitive.

The most important things a mortgage lender can do for you is be honest and communicate well with you, process your loan quickly, efficiently, without errors, and close on time.