The profession that took the greatest hit to its reputation during the mortgage implosion that started in 2007 was mortgage brokering. Callous agents who had no interests at heart but their own pursuit of a paycheck became poster boys (most of them were men) for the excesses of the home financing catastrophe. In retribution, the mortgage broker industry was cut off by most major lenders, and thousands of agents left the business.

The truth, of course, was more nuanced. Brokers took a lot of the blame that should reasonably have been shared between all players, from borrowers themselves to the Wall Street “chop shops” that minced loans into assorted bits in a vain attempt to do away with risk. The problem today is that the baby has been thrown out with the financial bathwater. Mortgage brokers had a very important role to play in the home financing marketplace in keeping lenders honest by having them compete for the broker’s business, and giving smaller lenders access to the whole marketplace without having to invest in a sales force. In short, the good mortgage brokers gave consumers more choice and better prices than they could get on their own. Lenders have begun to realize this, and are selectively inviting reputable brokers to represent them again. With this positive development, it is time to take a fresh look at the value borrowers gain by working with a broker.

Hire a Smart Person to Help You
The key benefits offered by a mortgage broker are:

• -A shopping service: Borrowers let the broker/agent do the work sifting through all the possible loan options to find those that best fit the borrower’s particular needs.
• -Expertise: Good brokers keep themselves highly educated on marketplace developments. At a time when the U.S. Government is rolling out a myriad of incentives and special programs to either save homeowners from foreclosure or get them into a new home, it helps to have a pro guiding you through the research process.
• -A representative: Brokers represent you in dealing with the lender, and have counterparts at each one that is dedicated to keeping their business. They can run interference between you and the lender when pushing your application through the approval process. In short, they handle the grunt work for you, doing what they do best so that you can focus on what you do best (which is usually not applying for a home loan.)

The key cost is, of course, the broker fee. You will pay a percent or two to have the broker shop for you, do the paperwork for you and represent you in dealing with the lender.

What is your time worth?
People can make silly decisions about money, and thinking a 1-2% broker fee is a rip-off is a classic example. On the surface, paying a broker multiple thousands of dollars to help you fund a loan seems like a lot. Let’s break it down, however:

Broker fee	$3,000
Hours worked (average loan)	40
Hourly rate	$75

Remember, too, that broker agents only fund an average of three loans a month. And as independent contractors, they pay their staff, operating expenses and marketing costs out of that fee.

Now consider the value of your own time:

Hours researching	10-20
Hours spent interviewing lenders	10-20
Hours spent on paperwork	10-20
Hours spent working with your chosen lender	Unknown! In today’s tough underwriting climate, expect to spend hours in conversation and follow-up
Extra interest paid because you didn’t find the best deal	Unknown!  But, a 0.25% higher rate on a $200,000 loan equals $5,000 in extra interest paid in the first ten years

As you are not a home financing expert, you will spend more time than the broker would getting all the work done. Given the above analysis, it will not surprise you that people with lower incomes tend to try to find their own financing directly with lenders, and higher-income folk tend to use brokers, because they value their time more highly.

You do not have to agree with them
The final benefit to working with brokers is one they hate: You don’t pay them until you sign on the bottom line. In fact, you could have them do all that work for you, and also approach some lenders directly (carefully selected, I hope), and place your business with the broker’s choice or the lender you found, and only be out a few hundred dollars in application fees either way.
Bottom line: You are in charge. You don’t have to accept their recommendation, but it’s a good bet that a seasoned mortgage broker will pay for him or herself at least two times over in time saved, interest saved, and headaches saved. I encourage you to include some reputable ones on your list when you shop for home loans.