You might be asking yourself “What the heck is a Broker Bank?” Most people have never heard of broker banks…in fact, prior to 1999 they didn’t exist. Here are the basics that every homeowner needs to know about Mortgage Broker Banks when refinancing a home loan.
Before the Real Estate Settlement Procedures Act was amended to require mortgage brokers to disclose their profit margins made from locking and closing mortgages with above market rates, banks were losing a large portion of their profits to mortgage brokers.
The Banking Lobby decided to do something about this and spent millions of dollars lobbying Congress to have the disclosure laws changed; their goal was to gain an unfair advantage in the marketplace by requiring mortgage brokers to disclose the commission based markup of your mortgage interest rate.
What is a Broker Bank?
The banking lobby succeeded in having the law changed and of course banks are exempt from this new disclosure legislation. This change in the Real Estate Settlement Procedures Act sent mortgage brokers scrambling to take advantage of the same loophole exploited by banks. All a mortgage broker had to do was fund their own loans like a bank which would allow them to close in the name of their company instead of a wholesale lender…hence the Broker Bank was born.
The only reason a mortgage company or broker would choose to operate as a broker bank is to hide their markup of your mortgage interest rate. If you refinance your home with a bank or broker bank you’ll never know mortgage rate you could have had with an honest lender.
How to Recognize a Broker Bank
Banks are easy to spot; however, when it comes to recognizing broker banks things can get a little fuzzy unless you know what to look for. First of all, broker banks love to brag about doing their loans “in house.” The best way to find out if your mortgage broker is acting as a broker bank is to ask if they close in the name of the wholesale lender. If the answer you get is “no” and they are closing in their own companies name then you know with 100% certainty that they are a broker bank and cannot be trusted with your mortgage.
Beware Bank Wholesale Divisions
One of my readers emailed me that she was working with a broker for a loan through Wachovia. Her broker convinced her that this was okay because the lender wasn’t Wachovia directly, but their “wholesale division” known as Vertice. The problem with this logic is that the bank controls their wholesale division and the rate sheets provided to mortgage brokers from Vertice include the markup. On top of this the banks salespeople do not have the authority to negotiate for lower rates. Banks have enormous overhead they must cover and rely on overcharging to make a profit. This is true of every bank originated mortgage loan on the market today.
Do you think my reader paid too much for her mortgage refinancing with Wachovia? Absolutely…she never signed up for the free mortgage videos I offer and will pay thousands of dollars too much. It always amazes me why people don’t take advantage of a free product that will not only save them thousands of dollars in unnecessary finance charges but show them how to avoid garbage fees as well. Similar products sell for hundreds of dollars and don’t offer half as much insider mortgage scoop that I give away free every day. I guess the old saying is true…you can lead a horse (in some cases a goat) to water, but you can’t make her drink.
If you’d like to learn how to refinance your mortgage with a wholesale rate without paying lender and broker garbage fees, register for my free video tutorial.
Once you’re certain that your credit reports are error free you are ready to begin comparison shopping mortgage offers. There are several different types of mortgage lenders, and types of lenders you need to avoid. The basic lender types you need to be aware of include wholesale mortgage lenders, banks, and correspondent lenders also known as broker-banks.
