PLAN A TRIP by air, sea or even land and chances are you don't grab the yellow pages and begin calling every airline, cruise company or railroad to pin down the best price, time and route.
That's what travel agents in theory do for a living: They take your needs, tap into a computer database and voila! out comes the perfect trip schedule and method of travel for your particular circumstances.
Home buyers have a version of the travel agent available to them when they look for a mortgage. The mortgage broker serves as a conduit between the buyer and the lender.
"Brokers were created because every bank has a different mortgage program," said Franklin Pack, a partner with the Buffalo law firm Pack Willig Hartman Ball & Huckabone and counsel for the Western New York Association of Mortgage Brokers.
"And the mortgage business is no longer just local," he said. "Mortgages are available from lenders nationwide. The average person doesn't know these things."
Statewide, there are 2,290 registered mortgage brokers, the majority working downstate. On the Niagara Frontier, there are 37 residential brokers.
"It's a growing business; lenders like us because we're a low-cost producer of business," said Ron Michnik, president of Independent Funding Service Inc. of Orchard Park and president of the Western New York Association of Mortgage Brokers.
Many registered mortgage brokers are affiliates of real estate firms; about 60 percent statewide are associated with real estate brokers, state Banking Department records show. Two such relationships locally are between Potter Realtors and Real Estate Loan Placement Corp., and the Remax group of realtors and Snyder Funding Inc.
"We generally work with 10 to 12 lenders, 90 percent of them local," said Diane Zale, manager of Real Estate Loan Placement. "We originate the mortgage application, make the borrower aware of all points and closing costs involved in the deal, and lock in a rate with a particular lender." Brokers cannot make or approve loans.
While it is affiliated with Potter, Ms. Zale's firm will work with any agent who brings in a potential applicant. The company also does refinancings, makes home-equity loans and works referrals from lawyers in which no real estate agents are involved.
Real Estate Loan Placement's fee, prevalent throughout the industry, is one point, or 1 percent of the mortgage loan amount, paid by the lender. This year, Ms. Zale said her firm will take about 800 applications, with an average loan amount of $70,000 to $75,000.
Pack said brokers generally can handle everything from the plain vanilla mortgage to the exotic. For example, making loans on vacant land, to people who have gone through bankruptcy proceedings or on restaurants generally are likened to the Black Death by many financial institutions. Yet, somewhere out there are lenders that make a living from off-the-wall loans.
The price tag on such a loan may be a bit higher, but to make a deal happen, buyers generally are willing to take a deep breath and pay the price.
Some lenders use brokers because they can increase the number of mortgage originations over and above what their own force of loan officers writes.
"Brokers are a significant source of business to us," said Gary Hutchings, vice president of M&T Bank's Residential Mortgage Division. "Our business is finding potential mortgage customers. If you don't use brokers, you're missing customers even though in one sense they are competing with your own retail operation."
Goldome's mortgage banking arm, Goldome Realty Credit Corp., is another local player that uses brokers, said Karen Wade senior vice president for residential production.
Prior to about 3 1/2 years ago, the residential mortgage brokerage business was a great place to find abuse. Brokering could only be performed by realtors and a lot of unscrupulous people took advantage of the masses.
"There were numerous abuses in advertising before residential mortgage brokers were placed under Banking Department regulation," said Robert H. McCormick, the state's deputy superintendent of banks in charge of the Mortgage Banking Division. "Anyone could call themselves a mortgage broker." Today, McCormick said his office receives more complaints regarding mortgage bankers than brokers.
In April 1987, residential mortgage brokering was taken out of the Department of State and placed under the control of the Banking Department.
Under Banking Department regulation, brokers were subjected to what banking departments at all levels do best: a plethora of rules. And the rules get more strict beginning today. The state Banking Board last month approved additional fee disclosure requirements that tighten the rules under which brokers operate.
Among the new requirements:
Brokers must disclose to applicants the maximum points, premiums and bonuses payable by a lender to the broker.
It must be made clear that broker fees represent an additional borrowing cost, whether the broker is paid directly by the borrower, or receives a fee at closing from loan proceeds. If the latter is true, the borrower also would pay interest costs over the loan term.
A loan application must include a toll-free telephone number or a processing center must accept collect calls from applicants living more than 50 miles from the center. A responsible person to call, either the manager or the licensee, must be included.
A broker must notify the Banking Department of any administrative, civil or criminal proceeding initiated by a state or federal government agency or department, or secondary mortgage buyers Fannie Mae or Freddie Mac if it pertains to residential mortgage lending.