Congratulations, you’re a middle man! Many may take that as some sort of insult. After all, we’ve all grown up hearing pitch men promote the fact that they eliminate the middle man. However, in the mortgage industry, the middle man is good. In fact, the middleman is just about the best thing that ever happened to the mortgage industry. In this chapter we will cover the mortgage broker’s roll as middle man.

Up until the late Eighties, borrowers got their loans from direct lenders, local banks, and Savings & Loans establishments. The borrower was limeted to the lenders personal portfolio of products. Most of the time, this meant about a dozen choices, half of which did not apply to that particular borrower. All of this changed when a new business model sprung up in the mold of the independent insurance agent. Like these agents, mortgage brokers were small, independent loan origination shops that could secure funding from one or more lending institutions for their borrower. Suddenly the borrower’s loan could be shopped against hundreds, and then thousands of possible loan solutions. By the mid nineties, brokers eclipsed traditional lending sources and became the market share leader in origination’s. The success of this business model can be credited to a win-win-win scenario for the Lender, Broker, and Borrower.

The Lender wins because they no longer need to market to the public, hire origination staffs, or widen their portfolio of loan products in an attempt to meet the needs of divergent borrowers. With brokers now charged in the origination of loans, lenders became “wholesale”. They didn’t need to convince the public to use them, just the brokers who would market for them. Lender’s were then able to reduce their staff as well. This was perfect in that lenders were basically paying a strait commission for the loans without the overhead of salaries, pension plans, and health insurance that was expected by their own employees. Finally, they could focus their efforts on a particular niche, or a small portfolio of niche’s. Because lenders knew a broker could go to Lender A for one type of loan, and Lender B for another, they were able to carve out there own piece of the industry pie. The end result was that the lender could now offer their best rates on their best products with less overhead and more profit.

The broker wins because he can offer an unlimited number of solutions for a borrower without being encumbered with the conservative pace in which a traditional lender operated. Basically, a broker markets to the public, interviews a prospective borrower, then shops that borrower’s scenario to a wide range of wholesale lenders. Brokers may work with only handful of lenders, or literally hundreds of them. It depends on the focus of the broker. With several lenders to choose from, and each with their own strengths and weaknesses, the broker combines a massive portfolio of loan products with the personal touch that only a small business can truly provide. Because brokers are independent, they have proven to be quick adapters to new loan products, innovative technology, and their own local market trends.

The borrower wins because their is now an unprecedented level of competition vying to fund their loan. Even the smallest towns across the nation can have more than one brokerage. Each brokerage has their own bevy of lenders. Each lender is looking to provide the proper solution for the broker’s client. The end result being that only the very worst credit risked borrowers are now without the means to buy a home.

The key to maintaining a flourishing broker-lender relationship is to always remember that working together is how we got this far. The lender does not serve the broker, nor does the broker serve the lender. Treating each other as partners will continue the success of this relationship.

Todd Carpenter - lenderama