"Mortgage Bankers and Mortgage Brokers Perform
Different Functions in the Mortgage Process
■ Brokers Act as Intermediaries between Consumers and Mortgage Bankers
Mortgage brokers are independent intermediaries who bring together prospective borrowers and
mortgage bankers. According to NAMB, a mortgage broker has “a working relationship with
numerous banks and other mortgage bankers and provides the consumer with access to hundreds
of options when it comes to financing a home.”6 Mortgage brokers tend to be small businesses and
frequently have little capital.
Mortgage brokers help arrange loans, performing application-related services, such as requesting
verification of the borrower’s employment, requesting credit and other information, and compiling
borrower documentation.7 Brokers typically do not provide loan funds.8
Brokers can — and do — provide substantial benefits to borrowers and mortgage bankers and contribute
to the efficiency of the mortgage industry. Brokers are an important distribution channel for
6 http://www.namb.org/namb/Mission.asp?SnID=1411867994
7 Until recently, brokers often arranged for property appraisals. Freddie Mac and Fannie Mae recently announced several
changes in their appraisal requirements, including a new policy that prohibits brokers from selecting or compensating appraisers.
See http://www.fanniemae.com/media/pdf/030308_agreement.pdf
8 In most instances, the mortgage broker assigns the mortgage to the mortgage banker at settlement and the mortgage broker
is paid for his or her origination services. This process is known as “table funding.”
A Report on Mortgage Bankers and Mortgage Brokers from the Mortgage Bankers Association
© Mortgage Bankers Association May 2008. All Rights Reserved.
...mortgage bankers’ loan products and, in particular, can enhance mortgage bankers’ ability to serve
traditionally underserved borrowers and communities.
■ Mortgage Bankers Provide Mortgage Funds
Mortgage bankers lend money through various channels: directly to consumers through their own
retail sales forces, by funding loans arranged by brokers or other mortgage bankers, and by purchasing
loans originated by other mortgage bankers. In most cases, mortgage bankers offer their own
products.9 Regardless of the lending channel, mortgage bankers are responsible for underwriting the
loan, which involves evaluating the borrower’s credit worthiness and the value of the home.
Once a loan is funded, mortgage bankers — depending on their business models — pursue various
paths. Some mortgage bankers hold the loans in their own portfolios; others sell the loan to a secondary
market investor. Separately, a mortgage banker may service the loan or sell the servicing rights.
Mortgage banking is highly competitive — mortgage bankers compete with each other and at times,
with mortgage brokers, for customers. Nearly 8,900 mortgage lenders reported under HMDA in
2006.10 Mortgage bankers compete for consumers through price, products, and services. Mortgage
bankers seek to offer attractive interest rates and loan terms and to develop innovative loan products
and services to meet a variety of consumer mortgage needs. Additionally, if a mortgage banker
services loans, they provide continuous customer service and support to borrowers during the life
of the loan.
Mortgage bankers are organized in many forms, such as federal- and state-chartered banks, thrifts,
credit unions, and other depository institutions, as well as non-depository mortgage companies.
Mortgage bankers come in many different sizes, from small businesses to large multinational
corporations.
Differing Functions of Mortgage Bankers and Brokers
Lead to Vastly Different Consumer Expectations
The different functions and services of mortgage bankers and mortgage brokers lead consumers to
have vastly differing expectations of each. Consumer expectations of mortgage brokers often do not
match brokers’ actions and responsibilities, which effectively limits the consumer’s ability to protect
his or her own interests.
9 Mortgage bankers sometimes function as mortgage brokers, offering the loan products of other, larger mortgage bankers.
Where a mortgage banker performs the function of a mortgage broker, MBA believes that the banker should be subject
to the same disclosure requirements as a broker.
10 Robert B. Avery, Kenneth P. Brevoort, and Glenn B. Canner, “The HMDA Data,” Federal Reserve Bulletin, December 2007."
http://www.federalreserve.gov/pubs/bulletin/2007/pdf/hmda06final.pdf
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