Are Mortgage Brokers (Still) Necessary?

According to USA Today, the mortgage broker industry is in a serious state of decline, with many firms collapsing and brokers disappearing. This is not only confirmed by anecdotal evidence, but is also born out in stories of major lenders shuttering their mortgage brokerage departments. JP Morgan and HSBC were the first to stop employing brokers, and this week, Bank of America announced that it is following suit.

One of the main causes is enhanced government regulation, which was implemented after critics charged that brokers were behind many of the risky lending practices that produced the housing bubble. “States in the past two years began requiring brokers to pass licensing exams and undergo background checks. A criminal record, even a past bankruptcy, can now prevent someone from writing a mortgage. If states don’t already do it, a federal law coming in January” will impose similar requirements on brokers nationwide.

Even though the decline in brokers makes it less likely that you will need to hire one, it’s still worth considering. Often, brokers have access to better deals than you do because of wholesale agreements with lenders. At the very least, they will be aware of all that the market in your area has to offer and can steer you to a better deal than you would have found on your own. In addition, they will help you navigate the entire process of obtaining a mortgage, and go to bat for you with the lender if need be. Obtaining a mortgage is a stressful experience, and it can be nice to know that there is someone else looking out for your interests.

On the other hand, it seems that lenders are less eager to work with brokers than before, which means the likelihood that brokers will be able to obtain a special rate for you is also lower. (Some lenders even insist that they can offer lower rates directly to borrowers by cutting out the middlemen!) Besides, the internet has made conducting mortgage research and obtaining quotes fairly straightforward, such that hiring a broker might not save you that much energy, With mortgage costs rising across-the-board, you can certainly be excused for not wanting to shell out cash for a broker.

Ultimately, one should engage an independent broker knowing that they very well might spend more on the mortgage (only when you account for broker fees) than they otherwise would have. (Do not use no-fee brokers, since they are paid commissions by lenders and will steer you accordingly). As I see it, the value in having a broker is the advice that they can offer; your mortgage broker works for you. Your loan officer works for the lender. If you’re tempted but not certain, you can speak to a brokers without paying an up-front fee. If you like what you hear, sign up. If not, you can walk away.