What are the differences between a Mortgage Broker and a Mortgage Lender (Direct Lender)
A Mortgage Broker and a Mortgage Lender are vastly different, and those differences vary state by state.
To best understand the difference in California, one must first understand the definition of Fiduciary Duty. Cornell Law loosely describes Fiduciary Duty as:
When someone has a fiduciary duty to someone else, the person with the duty must act in a way that will benefit someone else, usually financially. The person who has a fiduciary duty is called the fiduciary, and the person to whom the duty is owed is called the principal or the beneficiary.[1]
A Mortgage Lender is an entity with the money to lend (usually a bank, but sometimes referred to as a direct lender) AND HAS NO FIDUCIARY DUTY to act in the client’s best interest. They are a for profit entity as was made clear in concurring opinions in Nymark v. Heart Federal Savings and Loan (Third District Court of Appeals, June 27, 1991) which stated:
The relationship between a lending institution and its borrower-client is not fiduciary in nature…A commercial lender is entitled to pursue its own economic interest in a loan transaction…[2]
Thus, the consumer better be knowledgeable and perform due diligence before signing a contract. Caveat Emptor.
Per California State Law (California Civil Code Section 2923.1):
A mortgage broker providing mortgage brokerage services to a borrower is the fiduciary of the borrower, and any violation of the broker’s fiduciary duties shall be a violation of the mortgage broker’s license law. This fiduciary duty includes a requirement that the mortgage broker place the economic interest of the borrower ahead of his or her own economic interest. A mortgage broker who provides mortgage brokerage services to the borrower owes this fiduciary duty to the borrower regardless of whether the mortgage broker is acting as an agent for any other party in connection with the residential mortgage loan transaction. [bold added for clarity]
A Mortgage Broker is an entity with a fiduciary duty to their client[3] meaning we put your economic interests ahead of our own, but in reality, aligned with yours; truly a win – win proposition.
As part of that duty, we educate, advise you on improving your credit, to help you get the best pricing, and to shop your loan with various lenders.
Zoom Mortgage Pros, Inc. has relationships with many wholesale and boutique lenders (from powerhouses like United Wholesale Mortgage (UWM), Caliber Home Loans and PRMG to niche lenders that provide loans for unique situations (like home flipping, construction or reverse mortgages).
Resources
[1] https://www.law.cornell.edu/wex/fiduciary_duty
[2] https://realtytimes.com/mortgage-advices/item/47540-20160920-does-a-mortgage-broker-have-fiduciary-duty-to-the-borrower
[3] https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=CIV§ionNum=2923.1
Thanks for your blog, nice to read. Do not stop.
Glad you enjoyed the read. People think that because a bank is regulated, the bank has the customers best interest at heart, and that is not always the case.