Mortgage brokers getting rich even in softening market

The real estate market has been red hot during the last five years, and people have been buying homes at record rates. It doesn’t matter if the purpose in buying a house is to live in it or buying a house to invest in; they’re selling like crazy at prices that would have seemed ridiculous just a year or two ago. The lending industry is doing well, but is starting to suffer a bit from the increased incidence of mortgage fraud, which is generating billions of dollars worth of fraudulent home sales each year. One group continues to do well, however - mortgage brokers.

The mortgage brokering business is a relatively new one, made easier through the use of the Internet. In essence, a mortgage broker is a middleman between the borrower and the lender, and the broker, in theory, finds the borrower the best possible loan and then hooks them up with the appropriate lender. In exchange for this, the broker receives a share of the loan amount, usually something on the order of 1-1.5% of the loan. Usually, but not always, this amount is paid by the lender, who is grateful for the business.

This industry is well suited to small businesses, and there have been a number of well publicized cases of mortgage brokers who started with a few thousand dollars in borrowed money and soon became millionaires. The industry has not yet consolidated, and it is still one that is populated by mom and pop firms, rather than by large corporations. This may change, but for the time being, it’s still a business that favors the little guy.

The work involved is still rather hands-on, requiring that the borrower’s needs be met with a loan type and lender that suits the borrower’s needs and financial situation. The business is getting a bit more crowded, however, and in larger cities, brokers have resorted to saturation advertising on radio and television.

While the notion of seeing a mortgage broker to find the best deal may be appealing to would-be borrowers, a word of caution is in order. The broker isn’t necessarily looking out for the borrower; he or she is looking out for their own commission. That being the case, the broker may steer the buyer to a loan that provides a generous commission, rather than one that provides a good deal for the customer. This should be taken into consideration by anyone who is looking for a home loan. Make sure that you shop around for the best deal, and if you’re talking to a middleman, you might consider talking to more than one. The best possible deal is one that takes into account the largest possible number of middlemen and lenders. You won’t get that from the guy who screams loudest on TV.

When meeting with someone who can arrange a loan for you, be sure to ask them how they are compensated and how that compensation will affect his or her ability to find the best loan for you. It only takes a minute to ask, and it can’t hurt.