When RESPA legislation was passed to protect homeowners from predatory lending practices, the banking industry intensely lobbied to be exempt from mandatory disclosure laws, and they succeeded. Because of this lobby, your bank is not required to disclose to you what their profit margin is on your new mortgage loan. Banks in the United States are guilty of padding their mortgages with excessive fees and no one knows the extent of the overcharging; no one knows, except for the banks.
RESPA legislation paved the way for a hybrid lender to take advantage of the newly created bank loophole. This type of lender functions as a broker-bank. Broker banks are a hybrid lender: part bank, part mortgage broker and exist solely to take advantage of loopholes in RESPA legislation. These broker-banks specialize in correspondent loans which affords them the same disclosure exemptions as your local Banks and Credit Unions. It is difficult for the average homeowner to distinguish a broker-bank from a normal mortgage broker other than the fact the mortgage broker is required to disclose what the broker-bank is not.
If you are dealing with a legitimate mortgage broker that charges you a $1,000 fee, the mortgage broker will have to disclose that fee to you. The broker-bank will pocket $1,000 of your money without you even know it. Banks and broker banks rely on unsuspecting homeowners to make their money. After you close on your mortgage with your local Bank, they will immediately turn around and sell your loan to the secondary market in order to double or triple their profit. The more the bank overcharges you for the mortgage loan, the more your loan is worth on the secondary market. This is how greedy mortgage bankers make a living.
Because banks and broker-banks are exempt from disclosure laws in the United States they are often not willing to negotiate over interest rate and lender fees. They pad their mortgage offerings to make them seem less expensive while fleecing their borrowers on interest rates and terms.
How can you tell if the broker you are working with is a broker-bank? The easiest way to tell is to ask your broker. Ask your broker if they close the loans in their own name. If your broker answers that they do not, you have an actual broker and not a broker-bank. You can learn more about protecting yourself from predatory lenders when refinancing your mortgage loan by registering for a free mortgage guidebook.