Mortgage broker fee

[Ruchi Patel]

Currently getting a second conventional loan on a 2 family investment property (25% down). So basically I went through a local mortgage brokerage firm and the loan officer all along told me I was paying 1% in point for a discount interest rate of 4.5. Now that I’m a few days closer to closing date I get the final closing detail sheet which basically labels the 1% as broker fees to the independent firm.

This pretty much seems like it was a misleading statement because they never talked about a fee to them. Actually the lender should be paying them an upfront commission for closing the deal. Why are they charging me 1% in loan fees. Please advise on what I need to ask the brokerage firm or next steps? Thanks

[Chris Mason]

Originally posted by @Ruchi Patel:

Currently getting a second conventional loan on a 2 family investment property (25% down). So basically I went through a local mortgage brokerage firm and the loan officer all along told me I was paying 1% in point for a discount interest rate of 4.5. Now that I’m a few days closer to closing date I get the final closing detail sheet which basically labels the 1% as broker fees to the independent firm.

This pretty much seems like it was a misleading statement because they never talked about a fee to them. Actually the lender should be paying them an upfront commission for closing the deal. Why are they charging me 1% in loan fees. Please advise on what I need to ask the brokerage firm or next steps? Thanks

And if you called that lender directly as a retail customer rather than wholesale through a broker, 4.5% would probably be 1.75 or 2.5 points for whatever the particulars are of your scenario (bigger pockets clients try that aaaalllll the time once they see that I'm sending the loan to XYZ Mortgage :P ). In that case your loan wouldn't have to pay out just a single LO, it has to pay out a marketing department and a pyramid of middle management salespersons (division VP hires 3 regional VPs who hire 3 area managers who hire 3 branch managers who hire 3 front-line loan officers - times 10 and you've got a multi billion dollar retail mortgage bank).

In your case it just so happened that you elected to buy down the rate in an amount that happened to line up with his lender paid compensation. If you picked a lower rate, it might for example have been 1.5 points for 4.375%. But the broker would still be getting his flat compensation; ie that doesn't mean he gets a bonus or anything. And if you went with a no points interest rate for your scenario, that doesn't mean the broker isn't still being compensated just as much by the lender for bringing business in the door (we do "no points" loans all the time, no skin off my back, and heck these are more likely to refinance in the future so sure let's do it). By law, we have to get paid the same on the 3.25% loan as we are paid for the 5.5% loan (assuming the loan amounts are the same), but lenders are of course allowed to charge more upfront for the 3.25% loan and less for the 5.5% loan (assuming the borrowers are otherwise equally qualified). Post-recession, bankers and direct lenders do not have to disclose their cut, only brokers do - bankers have better lobbyists.