Mortgage Brokerage

Mortgage brokerages are companies licensed to assist borrowers to secure a mortgage and to assist lenders in finding borrowers. A mortgage broker oversees each brokerage. Mortgage associates need to be registered with a brokerage, and they are typically the brokerage representatives when working with consumers and lenders.

Relationship Options

Your brokerage can choose one of three relationship options:

  • acting as an agent for the lender
  • acting as an agent for the borrower
  • acting as an intermediary

Depending on the situation, your brokerage may have different relationships with different lenders and borrowers. Each relationship carries different roles and obligations.

You must explain your relationships to borrowers

Clients often do not understand their relationship with their mortgage brokerage, the role of the brokerage, or the relationship their brokerage may have with lenders. You must make sure that everyone involved in a mortgage transaction understands your role, why you have to do certain things, and who you represent.

You must disclose to borrowers, in writing, the nature of their relationship with the borrower, the nature of their relationship with the lender, the range of lenders whose products it offers, how it will be compensated and the nature of any other benefits.

Additionally, mortgage brokers are responsible for ensuring their role is clearly understand by their clients and third parties.

RECA has created a Mortgage Borrower Relationship Disclosure Document to help you explain these relationships to borrowers.

 

Representing the Borrower

When your mortgage brokerage represents the borrower, it must act in the borrower’s best interests at all times. Your brokerage will owe general, fiduciary, and regulatory obligations to the borrower. Your brokerage will recommend financing options to the borrower, advocate on their behalf, and provide them with confidential advice.

You must treat the lender honestly and act with reasonable care and skill.

RECA developed a Representing the Borrower Service Agreement to assist brokerages in making the relationship and compensation disclosures to borrowers.

Mortgage brokerages must only undertake activities that match the type of relationship the brokerage has chosen to have with lenders and/or borrowers. For example, if a mortgage brokerage business model is to act as an intermediary, an advertisement that indicates “we ensure borrowers get the best mortgage rate” may be false and/or misleading, as it could lead a borrower to believe that the mortgage brokerage is working on his or her behalf.

 

Representing the Lender

When your mortgage brokerage represents the lender, you must act in the lender’s best interests at all times. Your brokerage will owe general, fiduciary, and regulatory obligations to the lender.

You may treat the borrower as your customer. When the borrower is a customer, you must:

  • treat the borrower honestly and act with reasonable care and skill
  • gather information on the property the borrower wants to finance and the borrower’s financial situation
  • explain the lender’s options to the borrower
  • complete the necessary documents and submit them to the lender
  • inform the borrower about the transaction’s progress and any communications to them from the lender

RECA has developed a Borrower Consent & Disclosure When You Represent the Lender form to assist brokerages in making the relationship and compensation disclosures to borrowers.

 

Acting as an Intermediary

You cannot represent the lender and borrower at the same time.

When your mortgage brokerage is not representing the lender or the borrower, it can act as an intermediary between them, offering mortgage products from multiple lenders to the borrower.

When dealing with the borrower as an intermediary, you must:

  • treat both parties honestly and act with reasonable care and skill
  • gather information on the property the borrower wants to finance and the borrower’s financial situation
  • determine the lending options available to the borrower
  • explain the available options to the borrower
  • complete the necessary documents and submit them to the lender
  • inform both parties about the applications progress
  • explain the lender how your brokerage verified information and supporting documents in the application process

RECA has developed an Acting as an Intermediary Service Agreement to assist brokerages in making the relationship and compensation disclosures to borrowers and lenders.



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