A. Overview: Mortgage Bankers and Brokers
In helping realize the American Dream, that of supporting people's aspirations to own their own homes, mortgage brokers and mortgage bankers have long played an instrumental role.
Note: To a good number of people, The American Dream is that of owning one's own home.
Defined as the conduit between the homeowner and the financing source, mortgage bankers-brokers act as intermediary liaisons who seek out funding on behalf of either individuals (for personal residences) or businesses (for corporate sheltering purposes).
On account of the intimate connection between the worlds of financing and real estate, it is important that mortgage bankers-brokers have extensive knowledge of both industries.
B. Mortgage Banker: Definition
This finance professional originates, sells, and services mortgages in the secondary mortgage market.
C. Mortgage Broker: Definition
This finance professional is either an individual or a company who brings together borrowers and lenders for the purpose of a loan origination.
Although they do not personally originate or service the mortgage, they act as a negotiator between the lender and borrower attempting to leverage the best possible financing deal for both parties.
D. Bankers versus Brokers
While some may consider the terms, banker and broker, to be virtually interchangeable, the truth is that each plays a different role in the process of obtaining a mortgage.
Though sharing the commonality of helping individuals or businesses to secure funding, the banker (also known as a direct lender) has the ability to lend money, either their own money or that of the bank or financial institution that they represent.
In contrast, the mortgage broker acts in more of an intermediary role. As such, the broker seeks out available lending sources, assesses the funding options, and ultimately brings the lender and borrower together. On an average, a mortgage broker works with upwards of 40 wholesale lenders at any given time.
Many mortgage brokers have earned their licenses as real estate agents and, thus, are able to complement their financial offerings with real estate knowledge and expertise. It is important that they refrain from entering into any conflicts of interest.
E. Mortgage: Definition
Since the focus of both a mortgage banker's and a mortgage broker's job is that of either providing or finding acceptable mortgages for clients, we will take a step back to provide a working definition of the term mortgage.
Although varying definitions of mortgages exist, the general theme is that a mortgage is a security provided to the lender in the form of temporary pledging of property (lien) in exchange for the funding necessary to purchase the property.
Though not a debt in and of itself, a mortgage represents an evidence of debt. With a transfer of interest in land from the new owner to the mortgage lender, the understanding is that this interest will revert back to the original owner at the time when the terms of the mortgage have been satisfied.
As an aside, the origins of the term mortgage can be traced back to the Old French legal phrase dead pledge, which interpreted means the end of the pledge comes either when the obligation is fulfilled or the property is repossessed through foreclosure.
F. Mortgages: Brief History
At the time of common law (back in earlier days) a mortgage was constructed as a deal between the original land owner and the individual who desired to purchase the land. Within the terms of the mortgage, specified conditions were stipulated whereby the deal was to be annulled if they were honored.
Incepted during an era of strong agricultural production, often times, the terms of a mortgage included a passage on crops or livestock that the new land owner would grow and then sell to make money to pay off the debt on the land. Yet, even in instances where the land proved to be non-sustaining for crop growing purposes, the new land owner was still required to make regular payments on the mortgage.
During this early period of mortgages, the land owner was foreseen as having all the power. This was due to the fact the land owner could literally do whatever, for example, sell the land or dissolve the relationship with the borrower-new land owner at any time. And, in the beginning, the borrower had very few rights.
Eventually with legal battles and precedent-setting cases, a power shift occurred whereby the borrower won the right to be the absolute owner of the property (that is after they successfully paid off the mortgage in full, a status quo known as equity of redemption).
According to the website Anwers.com, the definition of the term equity of redemption is as follows: "The right of one who has mortgaged property to redeem that property upon payment of the sum due within a reasonable amount of time after the due date."
The right of which we previously spoke is based upon the equitable principle that believes borrowers should have a final opportunity to retain ownership over their property even in cases where they have failed to make payments on the mortgage, due to the fact that the property is to be sold in foreclosure proceedings.
G. Mortgages: Role in the Economy
In tandem with one another, because housing plays a major role in the nation's economy, so mortgages do, as well. For without mortgages, how would people be able to afford to purchase their desired properties?
Essentially, housing is a major source of household equity and, thus, is a determinant of an individual's net worth. So when more persons are able to own homes of greater value the economy is positively impacted. By the same token, when fewer people can afford homes, the economy is negatively altered.
Changes in the housing market, regardless of whether good or bad, can have far-reaching effects. While the goal is to achieve economic sustainability, mortgage bankers-brokers can play a pivotal role in helping to realize that end result.
Mortgage bankers-brokers have the ability to take on an advisory role where they consult with clients to not only assess their situation and seek out appropriate funding sources but to also realistically advise them as to what types of loans are within their current means.
Such a support goes a long way in ensuring that clients do not take out mortgages they cannot afford. Such preventative steps have the ability to keep persons from defaulting on their mortgages.
As a byproduct, the financial ramifications caused by large numbers of defaults of mortgages on the economic mainstream do not occur as readily and, thus, do not interfere as greatly with interest rate fluctuations and other financial adjustments that tend to accompany housing-mortgage crises situations.
H. Mortgages: Conclusion
Mortgage bankers differ from mortgage brokers in the sense that bankers are direct lenders capable of using their own (or that of their institution) available funds whereas brokers are intermediaries who match the borrower with an appropriate lender.
Their task, regardless of whether a banker or broker, is to help outfit the client with a means of financing property. Different, however, from a traditional loan, a mortgage involves the idea of a lien where a property is not rightfully owned by the borrower until the home finance loan is paid back in full.
Throughout time, mortgages have been executed in various ways from giving the lender entitlement over one's production outputs to that of allowing the borrower to have the absolute power over the property.
With a growing consternation within the mortgage industry, perhaps more than ever before, it remains important that there be a steady reserve of reputable, hardworking, intelligent mortgage bankers-brokers.
To both safeguard the interests of future property owners and protect the economy, as a whole, it is quite essential that there be trustworthy, knowledgeable mortgage bankers-brokers capable of professionally working with both first time and multiple-time homeowners to counsel them on their options and to reaffirm them of their final financing decisions.
The bottom line is that, going forward in time, people will continue to need mortgages. It is mortgage bankers and brokers, then, who can deliver the mortgages and do so in an honorable way.