Our firm has handled literally thousands of residential real estate transactions. We have often worked with some of the best lenders and mortgage brokers in the business but have also worked with some of the worst. Based on those experiences, here is our advice for choosing the right lender for you:
1) Beware illegal and/or unethical kickback schemes with title companies. Title insurance provides a guarantee to a borrower and their lender that the property is being transferred free and clear of any title defects and that any past title issues or claims have been resolved at or prior to the time of the closing. Many mortgage brokers own their own title insurance agencies and insist or suggest that those using their services use their controlled vendor. The reason for this insistence is not to look out for your best interests but instead to maximize the fees and compensation received by the mortgage broker. Kickbacks received merely for providing a referral and without performing core title services are a violation of the federal Real Estate Settlement Procedures Act. The fact is that attorneys have the best training, knowledge and experience to provide good, high quality title examinations and issuance of title insurance policies. Let the mortgage broker find the best loan for your transaction. Leave the legal intricacies of title insurance to your attorney.
2) Beware illegal and/or unethical kickback schemes with realtors. The Consumer Financial Protection Bureau was created after last decade's mortgage foreclosure crisis to reign in certain unethical behaviors by some people in the real estate industry. Recently, the CFPB fined a California firm for refusing to sell its listings unless the buyer used the services of the real estate broker's preferred mortgage lender. The reason for this insistence was the mortgage lender's payment of a kickback to the realtors of part of the fees earned from the loan transaction. Kickbacks received merely for providing a referral and without doing some other work to earn the fee are a violation of the federal Real Estate Settlement Procedures Act. There is nothing wrong with asking your realtor for a referral of a good mortgage broker/lender but beware one who insists that there is only one person you must use. Don't be afraid to ask if the realtor gets any compensation for the referral. If they refuse to answer, you know that they are providing the referral solely in their own financial interests and are not looking out for your best interests. Referrals are best provided solely because the provider is good at what they do.
3) Are you dealing with a direct lender or a mortgage broker? All banks and many mortgage lenders are direct lenders, meaning that they are lending you their own funds. That lender may or may not keep the loan and may sell it to someone else for a profit as part of their business model. Even if the lender keeps the loan, they may hire a third party to service the loan after you close, i.e. collect payments, handle tax and insurance escrows, etc. Make sure you ask questions about the loan being applied for so that you are fully informed.
Many loan officers are mortgage brokers, meaning they are not loaning their own funds but have access to loan programs made available by direct lenders. This often allows for a wider variety of loan product availability but can also result in higher fees and costs associated with closing. Don’t be afraid to ask a mortgage broker how much compensation they receive for originating your loan. An honest mortgage broker won’t have any problem sharing this information with you.
4) Experience Matters. There is no substitute for experience. A loan officer who has handled many transactions is better equipped to address many issues than one who does only a few transactions a year or is new to the business. Don’t be afraid to ask your lawyer, a friend, family member or associate for a referral. The best loan officers generate most of their business from referrals and repeat business.