Find the Right Mortgage Broker

Running around from lender to lender in search of the best terms for your mortgage loan can be confusing and time-consuming. Plus, there are deals out there that you, a finance-industry outsider, aren't privy to.

That's where a mortgage broker comes in. A mortgage broker can present your profile to an army of lenders with a far greater number of mortgage products than you'd have access to on your own. He or she does the legwork in return for a fee. It's a no-brainer, right?

Well, in theory, but keep in mind that as with any other service provider you hire, you have to be smart and stay on top of what a broker is doing in your name. Don't be content simply to let a single broker dictate the terms of your loan. You should be intimately familiar with your credit history and asset/debt profile, and you should have a ballpark idea of what kinds of loans you'll qualify for before you even dial a broker's number.

That's because the mortgage industry, like every other, has some bad seeds. Unscrupulous mortgage brokers played an integral role in the subprime mortgage market collapse by engaging in fraudulent activities: offering high-risk loans to customers who didn't understand them (or whose credit ratings actually qualified them for much better terms), charging junk fees, convincing homeowners to refinance even when it didn't benefit them, and so on. Many families victimized by these scams are now facing foreclosure of their homes.

Remember, a broker does not technically work for you. He is an independent contractor who will provide you with a laundry list of potential loan offerings to choose from. You must educate yourself about interest rates and loan terms so that you can choose the best product.

According to George Hanzimanolis, president of the National Association of Mortgage Brokers (NAMB), there are three steps you can take to find a trustworthy broker:

• Get a referral. This referral should come from friends or family who have completed the mortgage process with the broker in question (ideally, looking for a mortgage product similar to yours) and were satisfied with the results. Referrals from banks or other companies, while they may be perfectly legitimate, don't necessarily guarantee a good experience. If you're taking a referral from someone you have only a passing relationship with, ask for specific reasons why he or she is recommending the broker.
• Demand transparency. "Any good mortgage company or broker should have no problem offering complete transparency in a good faith estimate," Hanzimanolis says. A broker should ask lots of questions about you and your future plans in order to find the best possible loan for you. All fees and terms should be laid out plainly so that you can compare GFEs from one lender to the next. Any sign that a broker is a) hiding potential closing costs; b) failing to explain any fees, especially those collected up front; c) rushing your decision; or d) unwilling to negotiate terms should be an invitation for you to flee.
  
• Check the broker's credentials. NAMB is a not-for-profit organization that serves as an industry watchdog and requires its members to adhere to a strict code of ethics. It also offers certifications in specific areas of expertise. You can find out whether a broker belongs to NAMB by visiting namb.org and searching the broker database.

"The bottom line is, you need to feel good about the transaction," Hanzimanolis says. "Trust your gut. If anything seems amiss to you, you should look for another broker."