What to ask your next mortgage broker

To survive the shakeout in their industry, lending middlemen will have to act in the best interest of their clients - transparently.

EMAIL  |   PRINT  |   SHARE  |   RSS
google my aol my msn my yahoo! netvibes
Paste this link into your favorite RSS desktop reader
See all RSS FEEDS (close)
By Stephen Gandel, Money Magazine senior writer

Real Estate:
Your local forecast
381 markets tracked
1. Select your state
2. Select your city/market
Mortgage Rates
30 yr fixed 3.80%
15 yr fixed 3.20%
5/1 ARM 3.84%
30 yr refi 3.82%
15 yr refi 3.20%

Find personalized rates:

Rates provided by

(Money Magazine) -- Dave Pruka, 41, a Minneapolis publishing executive, went hunting for a mortgage earlier this year but didn't bother with a broker.

Instead he visited several banks and eventually a website,, which allowed him to see rates from dozens of lenders at once.

"I didn't like the idea of having someone else do my shopping for me," says Pruka. "I wanted to ask the questions and hear multiple answers and then do the comparison myself."

Up until now: What a difference a burst bubble can make. Only two years ago, mortgage brokers originated more than two-thirds of new loans, according to Wholesale Access, a mortgage research firm. Now their share of the mortgage pie has dropped to 45%.

That's a shocking loss of market share when you consider that brokers were supposedly a boon to borrowers. Because they don't work for any one bank, they can shop dozens of lenders on your behalf to get the best loan at the lowest price.

But they seldom did. Instead, brokers pocketed kickbacks from banks in return for selling borrowers unnecessarily costly loans. An April study by the Center for Responsible Lending, a nonprofit organization working to eliminate abusive lending practices, found that among borrowers with credit scores of 640 or less, those who used brokers paid an average of $5,222 more in the first four years of their mortgage than those who borrowed directly from a bank. Borrowers with credit scores of 640 to 720 paid $1,316 more.

The next evolution: To survive the shakeout in their industry, mortgage brokers will have to do business more transparently. A number of bills before Congress would require them to disclose fees and take on a fiduciary responsibility - that is, represent their client's best interest.

A few large banks are cutting mortgage bankers out of the process. Bank of America (BAC, Fortune 500) has recently said it will make all loans directly to customers. Several websites have arisen to facilitate such direct sales., which launched in November, can get you quotes from 280 banks and credit unions around the country and, unlike, and other familiar online names, does not steer you to mortgage brokers. (See editor's note at bottom.)

If you still want help from one, you don't have to wait for the regulators, however. You can insist on reformed behavior yourself. Demand that your lending middleman set his fee in advance - not just what you will pay but also what he will get from the bank, which affects your rate. His or her total fees should not exceed 2% of the loan.

A growing group, referred to as up-front brokers, make a practice of baring all for you. You can find a list of them at

- A previous version of this story incorrectly reported that Wachovia also said it would make all loans directly to customers. Wachovia has not said it would do so.

Send feedback to Money Magazine To top of page

Find mortgage rates in your area

They're hiring!These Fortune 100 employers have at least 350 openings each. What are they looking for in a new hire? More
If the Fortune 500 were a country...It would be the world's second-biggest economy. See how big companies' sales stack up against GDP over the past decade. More
Sponsored By:
10 of the most luxurious airline amenity kits When it comes to in-flight pampering, the amenity kits offered by these 10 airlines are the ultimate in luxury More
7 startups that want to improve your mental health From a text therapy platform to apps that push you reminders to breathe, these self-care startups offer help on a daily basis or in times of need. More
5 radical technologies that will change how you get to work From Uber's flying cars to the Hyperloop, these are some of the neatest transportation concepts in the works today. More

Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.