SterlingResidential.com | Buying & Selling Residential Properties in Texas | Houses for Rent Houston Area | Humble Atascocita Kingwood & Spring Texas Realtors | Sterling Residential®, Realtors® | Real Estate Broker: About Mortgage Shopping

Mortgage lenders are offering more products than ever, and sorting through all the available information can be confusing. Educating yourself with the mortgage financing basics is a smart way to start. To get the best deal, and keep dollars in your pocket, you should read, ask questions, and shop around.

Mortgage lending is a highly regulated industry, and borrowers are presented with many disclosure forms throughout the lending process. Your mortgage professional will provide you with up-to-date local, state, or federal information as required by law, so learning some mortgage finance basics will help you understand the different disclosures you’ll receive throughout the process.

Mortgage lending is growing highly specialized, too. Mortgage products are under continuous development as lenders match loans to borrowers with different financial needs. Loans with flexible terms and payment options are prevalent. With so many choices between products and lenders, getting to know the home mortgage basics is prudent and understanding the working relationship between you and your lender is a good place to begin.

1 | Mortgage Brokers and Mortgage Bankers: Who do they work for?

Unlike your Realtor, Texas mortgage brokers and mortgage bankers are not fiduciaries —- they do not represent you and have no responsibility to get you the best deal. They are independent contractors working as intermediaries between you and the lender.

Texas mortgage brokers are licensed by the Department of Savings and Mortgage Lenders and must disclose consumer information about their relationship, their duties, and their compensation as required by the Texas Mortgage Broker License Act. Mortgage brokers typically represent several lenders with a variety of mortgage products tailored to the borrower’s individual needs. They are required to maintain a physical Texas office address. They originate and process the borrowers application, then place the loan with a lender. Working independently, they can shop your application with several competing lenders, matching your application with the best program and getting you the best rate.

In comparison, Texas mortgage bankers are approved by the US Department of Housing and Urban Development (HUD) to originate first-lien mortgages for residential properties. Since 2004, Texas has required mortgage bankers to register with the Department of Savings and Mortgage Lending, as required by the Mortgage Banker Registration Act. Mortgage bankers are direct lenders, originating and underwriting loans with their own funds and offering mortgage products they develop and sell themselves. They may service the loans or package and sell them to investors. Using a direct lender eliminates the middleman and the associated broker fees, with the tradeoff being a limited selection of loan products.

Builders, brokers, or title companies may refer borrowers to affiliated lenders —- companies with whom they have an established business relationship. The Real Estate Settlement and Procedures Act (RESPA) requires disclosure of affiliated business arrangements. When a builder, mortgage lender, real estate broker, or title company refers you to an affiliated business for mortgage-related services, they will provide you with a form notifying you that use of their affiliated service is not required. Borrowers can benefit from the convenience of affiliated businesses offering one-stop shopping, but it’s always a good idea to compare services.

2 | Not All Mortgage Practices Are Legal, Ethical or Smart

Most mortgage professionals are ethical, but some commit illegal or unethical acts meant to defraud lenders or borrowers. Mortgage fraud, predatory lending, and aggressive lending practices can be found right here in Houston. Mortgage fraud is a serious federal offense resulting in stiff penalties and fines. Predatory and aggressive lending may not be illegal, but they can be ethically questionable practices.

Mortgage fraud typically involves a straw buyer who may be unaware of the fraud being committed. Mortgage fraud tactics may involve falsified applications, inflated appraisals, price changes above the sales prices, loan or purchase documents altered just prior to closing, or large payments to contractors, lenders, or real estate brokers. Usually, at least one industry professional is involved in the fraudulent activity.

Predatory lending practices target vulnerable, unknowledgeable borrowers and may involve approving loans beyond the borrowers ability to repay, charging higher interest rates and fees, charging fees for unnecessary products or services, requiring credit life insurance, using high pressure tactics to induce buyers to accept unfavorable financing terms, or changing the terms or fees at closing when it’s too late to arrange new financing.

Aggressive lending practices make homes appear more affordable by reducing early mortgage payments, and shifting costs to future. Adjustable rate mortgages, interest-only mortgages, and balloon payments are useful loan products, but when sold to marginally qualified buyers, they can be risky. These loans can be used to qualify borrowers for lower payments in the early months or years with the anticipation that the home will be sold or refinanced before the monthly payments rise. The borrower risks financial losses or foreclosure if they’re unable make the later higher payments or sell the house.

3 | Start with Online Resources

Learning about mortgage finance is easier today with the vast online resources available to consumers. Take advantage of free online information including our loan calculators. Learn about lending practices and loan programs HUD’s Buying a Home Guide that includes information on mortgage shopping. Amazon.com includes some great mortgage related books including the following titles: