Save Commission by Becoming a Broker?

March 20, 2000, Revised November 8, 2006

"I just obtained my real estate broker's license. I want to finance the purchase of my own home and save money by earning the commission on the mortgage. Is there a list of lenders and loan programs similar to the multiple listing service for real estate? Or do I contact lenders directly? I just need a starting point to earn my own commission."

You've wasted your time. In most states, a real estate broker's license does not cover mortgage brokerage activity. Mortgage brokerage usually requires a separate license. Even if you are licensed as a mortgage broker, it won't save you money on your own loan unless you go into the business of brokering loans for others. If you are only interested in a loan for yourself, forget about it.

Mortgage brokers are not like travel agents, who often save money by pocketing the commission when they arrange their own trips. The home loan market doesn't work that way and the travel market won't be working that way much longer either, but that's another story.

Generally, home loans are distributed through two major distribution channels, retail and wholesale. Most large lenders in the US operate through both channels.

Lenders using the retail channel employ and support loan officers, who are paid largely by commission. They also must employ salaried loan processors who do all the detailed work involved in developing the file of information about an applicant. The prices delivered to their loan officers to be quoted to applicants are "retail" prices because they cover all these distribution costs.

Lenders using the wholesale channel of distribution use mortgage brokers, independent contractors who typically deal with multiple lenders. The mortgage brokers find the borrowers and process the loans. Large brokerage firms employ their own loan officers who work very much like those employed by lenders operating at retail. The difference is that loan officers employed by mortgage brokers can offer the loans of multiple lenders.

Lenders using the wholesale channel shift the costs involved in marketing and processing loans to the brokers. Lenders quote wholesale prices to brokers, who add a markup to derive the retail price they offer to potential borrowers. These prices can be higher or lower than those quoted by loan officers employed by lenders operating at retail.

Wholesale lenders deal only with brokers who can generate significant volumes of business. If you have a mortgage broker's license but are not otherwise in the business, you can't pocket the markup on a wholesale price because no wholesale lender will deal with you. If you inform the lender you are a mortgage broker looking for a loan for yourself, you will be referred to the retail department. And if the lender has no retail department, you will be referred to one of its mortgage brokers.

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