Mortgage broker

Key Takeaways

• A mortgage broker arranges financing but does not lend its own money; a funding lender supplies the loan proceeds at closing.
• Washington licenses mortgage brokers and loan originators under the Mortgage Broker Practices Act, chapter 19.146 RCW, through the Department of Financial Institutions.
• A Washington real estate license under chapter 18.85 RCW does not authorize a person to act as a mortgage broker; they are separate licenses under separate chapters.
• A Washington mortgage broker or loan originator must deliver a full written disclosure of the loan's fees and costs within three business days after receiving the loan application (RCW 19.146.030).

What It Means

A mortgage broker is a financing intermediary. The broker takes a borrower's application, packages the income, credit, and property information into a file, and shops that file among lenders, banks, investors, and other funding sources to find the best terms the borrower can get. What the broker does not do is lend. The money at closing comes from the lender that approves the file, and the loan is serviced by that lender or by whoever buys it later.

That single fact separates a mortgage broker from a Mortgage Banker, who underwrites and funds loans with its own money or with borrowed warehouse money. It also explains what a broker is worth to a borrower with an unusual file, such as self-employment income or a property type one lender dislikes. A single application can reach many underwriting appetites instead of one.

A broker is paid for placing the loan, and Washington requires the fees and costs the borrower must pay to be itemized in writing early in the process. A broker does not approve loans. Underwriting, the loan decision, and the rate lock all belong to the funding lender, and a borrower's Debt To Income Ratio is judged against that lender's guidelines.

How It Works in Washington

Washington treats mortgage brokering as its own licensed occupation, separate from real estate brokerage. The Mortgage Broker Practices Act, chapter 19.146 RCW, defines a mortgage broker as any person who, for direct or indirect compensation or gain, assists a person in obtaining or applying to obtain a residential mortgage loan, or who holds himself or herself out as being able to do so (RCW 19.146.010). The same section defines a loan originator as an individual who, for compensation or gain, takes a residential mortgage loan application or offers or negotiates the terms of one, and it names the Department Of Financial Institutions as the department that administers the chapter.

RCW 19.146.200 provides that a person, unless specifically exempted under RCW 19.146.020, may not engage in the business of a mortgage broker or loan originator without first obtaining and maintaining a license. Two duties follow from the chapter. RCW 19.146.030 requires a full written disclosure itemizing and explaining all the fees and costs the borrower must pay, delivered within three business days after the loan application is received. RCW 19.146.0201 makes it a violation to employ any scheme, device, or artifice to defraud or mislead borrowers or lenders, or to make any false or deceptive statement about the rates, points, or other financing terms of a residential mortgage loan. A real estate license issued under chapter 18.85 RCW grants none of this authority, and the two credentials come from two different Washington agencies.

Example

Devon is buying a house in Olympia for $525,000 with 10 percent down. Ten percent of $525,000 is $52,500, so he needs a loan of $472,500. His own bank quotes 6.875 percent on a 30-year fixed loan, which works out to a principal and interest payment of roughly $3,104 a month.

He also applies through a Washington-licensed mortgage broker on a Tuesday. Within three business days the loan originator delivers the written disclosure itemizing the fees and costs he will pay. She submits the file to four wholesale lenders, and the best approval comes back at 6.5 percent, a principal and interest payment of roughly $2,986 a month on the same $472,500. That is about $118 a month less than the bank's quote. The broker still does not fund anything: at closing the wholesale lender wires the $472,500, and the broker's compensation shows on the settlement statement.

Common Mistakes and Exam Traps

• Mortgage broker versus mortgage banker: the broker places the loan with another lender's money, while the banker funds the loan itself.
• A mortgage broker is not a real estate broker. In Washington the two are licensed under different chapters and administered by different agencies.
• The funding lender, not the mortgage broker, underwrites the file and issues the loan approval.
• The three-business-day disclosure clock under RCW 19.146.030 runs from receipt of the loan application, not from loan approval or from closing.