Know the difference: Mortgage Brokers and Loan Officers
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Do you know the difference between a loan broker and a loan officer? Since both mortgage brokers and loan officers arrange financing for homes, you might think those are just two names for the same kind of loan originator. Yet they are not the same and understanding the differences between them will help you make the choice that will be best for you.
A mortgage broker is an independent agent working on your behalf. In California, a broker represents you, the borrower. The broker is your fiduciary who must put your best interest first, as a matter of law and regulation. That fiduciary responsibility includes a duty to you of the "utmost care, integrity, honesty, and loyalty" as well as an obligation of fair dealing, good faith, and full disclosure, in addition to diligent exercise of reasonable skill.
A good mortgage broker will look first at your financial situation and personal goals to determine which lender will be the best fit for your loan. Your mortgage broker will stand as coordinator between you and the lending institution, which may be a credit union, commercial bank, finance company, mortgage banking corporation or even an individual investor.
After your application is complete, your broker will submit your loan request to the selected lender, along with necessary verifying documentation. Then, when your loan is approved, the broker will work with the lender, attending to the details necessary to get your loan funded and closed.
Mortgage brokers like First Residential have developed relationships with a number of lenders who offer loans to brokers at wholesale rates. In order to be competitive with the retail arms of mortgage lenders and banks, brokers will offer rates and fees to the public that compare favorably to retail lenders. Independent brokers generally have much greater price flexibility than institutional lenders and are often able to provide loans to borrowers at significantly less cost.
Mortgage brokers are individually licensed by the State of California and the Federal National Mortgage Licensing System (NMLS). To obtain the license, applicants must take certain college-level courses, pass State and Federal exams, and be cleared through a national background check. Both California and the Federal government have continuing education requirements for all broker-originators.
Loan officers are employees of lending Institutions (banks, finance companies, and the like) whose job it is to sell the loan products of their employing institution. They may may be able to offer loans to fit a variety of situations, but the selection will be limited to the programs, rates, and terms their employer is selling.
While it may appear that a loan officer is acting on behalf of the borrower, that is not the case. The loan officer's first loyalty is to his or her employer. The standards of fair dealing and honesty that are accepted in retail businesses of all types guide the good loan officer's conduct.
The loan officer (also known as an "account executive" or "loan representative") will walk you through the application, and track processing and loan closing. Most lenders compensate their loan officers with a base salary, plus commissions.
Lender's loan officers are not licensed, though they must be registered with the NMLS as loan originators. No pre-employment classes, examinations or background checks are required of loan officers. Loan officer training is the responsibility of the employing institution.
Finally, a loan officer's relationship to borrowers is essentially that of a salesperson to a customer, while a licensed mortgage broker's relationship is that of an agent to a principal. That's why we say, "Our borrowers are not just our customers; they are our esteemed clients!"
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