Subprime borrowers who use a mortgage broker pay less than when obtaining their mortgage from a mortgage banker, according to a joint study from economists at George Washington and Oklahoma State Universities. But a mortgage banking group questions the consistency of the findings.
This was the conclusion from data analyzed from the third quarter of 1995 through the end of 2003 from the subprime mortgage subsidiaries of 10 large financial institutions, the report said.
"The results indicate that broker-originated mortgages are not more costly and generally less costly to the borrower than lender-originated mortgages after holding other loan terms and borrower characteristics constant," the economists reported. "They are consistent with hypotheses that brokers may be more efficient than lenders in originating loans and may be better able to match borrowers' and lenders' reservation prices."
Mortgage Bankers Association Senior Economist Mike Fratantoni told MortgageDaily.com that, indeed, one factor leading to the aforementioned results might be that brokers could have more options to offer borrowers than a loan officer at a particular lending institution. However, with a market that is so fluid, Fratantoni said, overall -- study after study -- he didn't think these results would be consistent.
National Association of Mortgage Brokers President Harry Dinham said in a recent press release regarding the study that, "Brokers are small business men and women who have to be competitive to remain in business ... the hard data in this report is a clear sign that this competition is benefiting consumers in the subprime market."
Another reason for the results is that brokers are required to disclose the money they make on mortgage loans while lenders aren't, according to National Mortgage Complaint Center President Thomas Martin.
"Brokers have to report what they are actually being paid, so at least the consumer has a halfway decent chance of discovering what the fees are as opposed to mortgage bankers or banks do no have that disclosure issue," Martin told MortgageDaily.com.
The most flagrant abuse Martin said he sees in subprime lending is when a lender charges three or four points up front and then receives a rebate on the back end, unbeknownst to the borrower.
In addition, brokers tend to develop a long-term working relationship with the borrower unlike many call centers bigger lenders use to originate loans, he added.