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MORE AND more, lenders are trying to get on the good side of mortgage brokers, builders, lawyers and anyone else who might be able to refer them to customers who are shopping for a home loan.

With the mortgage market shrinking as home sales decline from their 1986 peak and fewer homeowners refinance their loans, lenders are scrambling to find ways to drum up business beyond the customers who simply walk into their office.

Locally, many of those referrals come from mortgage brokers, independent agents who are licensed to place loans with several lenders they are authorized to represent.

As a result, the mortgage brokerages, which often are subsidiaries of local real estate firms, give home buyers a chance to compare the programs offered by several lenders with a single stop.

"The advantages are primarily convenience," says Norman Flynn, president-elect of the National Association of Realtors.

Still, many lenders say it's a good idea for borrowers to shop around, just to be sure that they're getting the best deal. "It's the consumer's largest transaction in their lifetime and they have to take some initiative on their own," says Pamela Serafini, vice president of the residential mortgage department at Chase Lincoln First Bank.

"I'd be rather cautious," says Ronald Teplitsky, a department executive for retail mortgage banking at Marine Midland Bank.

"Most individuals who get to the point of buying a house probably have looked at several dozen homes. I think the least they can do is spend a half hour on the phone and call five or six lenders," he says.

Mortgage brokers don't actually lend any money. Instead, they help match the buyer with a financial institution that, in theory, offers the best rate and service for that situation.

While local executives say the rates offered through mortgage brokers generally are identical to those you could get from the lender itself, they argue that it can't hurt to double-check.

Of course, lenders generally are happiest when a borrower takes out a mortgage directly through them. That's because lenders usually make more money on loans they originate since they don't have to worry about mortgage brokers getting paid for their services.

In most cases, mortgage brokers get paid a fee -- generally equal to 1 percent of the loan amount -- for every mortgage they refer to a lender. That fee usually is tucked into the points the borrower pays when the loan closes. A point is equal to 1 percent of the loan amount.

In most cases, though, that fee is offset because the lender reduces the number of points it charges on that particular loan if it is issued through a mortgage broker.

That way, if the lender knocks one point off the loan, the mortgage brokers can tack on their one point fee and still offer the loan at the same price as the lender.

Regardless, Teplitsky says the best way to start shopping for a mortgage is to select a handful of lenders from the Yellow Pages and call them to check their rates and the type of loans they offer.

Don't just ask about the mortgage rate and the points, either. Be sure to ask about all the fees that the lender charges for each loan. Those extra charges, which include fees for filing the loan application and an appraisal, often vary with each lender.

As a result, the lender offering the lowest mortgage rate and fewest points may not have the best deal after all the other fees are taken into account. "It's hard for the consumer to translate the fees they pay into an annual percentage rate," says Michelle Meier, counsel for government affairs with Consumers Union, the watchdog group that publishes Consumer Reports magazine.

In addition, it's a good idea to ask your real estate agent for the names of the lenders that do the most business in the area and check with them too, Teplitsky says.

Then, when you talk with a mortgage broker, you'll already have a feel for the loan programs that are available locally and be better prepared to recognize what's the best deal for you.

In addition, be sure to ask the mortgage broker which lenders they deal with and find out whether those loans will be priced the same as they are by the lender, Teplitsky says.

But borrowers in Western New York are missing out on a controversy that's simmering nationally over the issue of whether it's proper for real estate agents to receive a fee for referring home buyers to certain lenders.

While no lender is offering that type of a program in Western New York, the issue has caused a split nationally between the trade groups representing real estate agents and the mortgage industry.

Lenders argue that services provided by the real estate agents should be covered by the sales commission they receive. They say that allowing a home buyer to pay a real estate agent anywhere from $250 to $1,000 for five to 15 minutes worth of work really amounts to nothing more than a kickback.

And by allowing home buyers to pay referral fees to real estate agents, critics say the system gives the realtor an incentive to steer the borrower toward the lender that offers the agent the most lucrative payment.

"We're really concerned that, whenever a real estate broker has any financial interest in where the consumer gets a loan, the consumer won't get the best deal," Ms. Meier says.

"It really is anti-consumer and anti-competition," says Ellen-Jean Lapidus, a spokeswoman for the Mortgage Bankers Association of America, a trade group that is mounting an aggressive campaign against the practice.

But supporters of those referral fees, including the National Association of Realtors, say real estate agents deserve the payments when they help someone obtain financing, provided they disclose that relationship to the buyer.

Yet that doesn't mean a referral fee is justified if a real estate agent merely provides the name of a lender, says Flynn, of the realtors group. "We feel that if a member of the real estate community provides a service in assisting someone to obtain financing, then they should be compensated for that service," he says.

Because real estate agents depend heavily on referrals from satisfied customers, Flynn says realtors have a vested interest in finding the buyer the best financing deal. "If it isn't cheaper, I don't think the buying public will buy it," he says.

One of the referral programs that has stirred up the most controversy nationally is the Mortgage Power plan offered by Citicorp, which has operations in the Buffalo area through its subsidiary, Citibank.

Although Citibank is one of the area's biggest mortgage lenders, Michael Sovereign, the bank's Buffalo-area mortgage director, says the lender does not offer the Mortgage Power program locally. "Mortgage Power necessarily wouldn't fit into this market," he says.

Behind the whole issue is the Real Estate Settlement Procedures Act of 1974, which, so far, has been interpreted loosely by the U.S. Department of Housing and Urban Development.

HUD now is reviewing its interpretation, but, for the moment, the agency says the law does not bar real estate agents from charging home buyers for helping them find financing, as long as they fully disclose the fees in advance.

The mortgage bankers group, however, disagrees. "It creates an unethical situation," Ms. Lapidus says. "A system has been established so that they can get around the letter of the law."

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