A mortgage broker acts as an intermediary who sources mortgage loans on behalf of individuals or businesses.
Traditionally, banks and other lending institutions have distributed their own products. However as markets for mortgages have become more competitive, the role of the mortgage broker has become more popular. Today in most developed mortgage markets (especially the U.S., UK, Australia, Spain and Canada) mortgage brokers are the largest distributors of mortgage products for lenders.
The majority of mortgage brokers are regulated to ensure a level of protection for the consumer. The extent of the regulation depends on the jurisdiction.
Tasks of Mortgage Broker
Banks’ activities can be divided into retail banking, dealing directly with individuals and small businesses; business banking, providing services to mid-market business; corporate banking, directed at large business entities; private banking, providing wealth management services to High Net Worth Individuals and families; and investment banking, relating to activities on the financial markets. Most banks are profit-making, private enterprises. However, some are owned by the government or are non-profits. Central banks are normally government-owned banks, often charged with quasi-regulatory responsibilities, e.g. supervising commercial banks, or controlling the cash interest rate. They generally provide liquidity to the banking system and act as Lender of last resort in event of a crisis.
The nature and scope of a mortgage broker’s activities vary with jurisdiction. For example in the UK anyone offering mortgage brokerage is offering a regulated financial activity; the broker is responsible for ensuring the advice is appropriate for the borrowers’ circumstances and is held financially liable if the advice is later shown to be defective. In other jurisdictions the transaction undertaken by the broker may be limited to a sales job: pointing the borrower in the direction of an appropriate lender, no advice is given, and a commission collected for the sale.
Therefore the work undertaken by the broker will depend on the depth of their service and liabilities.
Typically the following tasks are undertaken:
Marketing to attract clients
- Assessment of the borrower’s circumstances (Mortgage fact find forms interview). This may include assessment of credit history (normally obtained via a credit report) and affordability (verified by income documentation).
- Assessing the market to find a mortgage product that fits the client’s needs. (Mortgage presentation/recommendations)
- Applying for a lenders agreement in principle (pre-approval)
- Gathering all needed documents (paystubs/payslips, bank statements, etc.),
- Completing a lender application form.
- Explaining the legal disclosures.
- Submitting all material to the lender.