Questions Mortgage Brokers Ask About Becoming a UMB
November 1, 2000, Revised July 6, 2009
A web site is the means by which you declare who you are and what you do. By placing the UMB commitment on your site, you are announcing to the public that you are prepared to do business in accordance with UMB principles.
Your web site is also the channel through which you will get referrals from the UMBA site, which will list UMBs by URL, not telephone number. Consumers referred to you from my site or the UMBA site will probably have read the pages describing what an UMB is and why a consumer will benefit from doing business with you. They will be informed loan prospects.
A web site also provides you with an opportunity to communicate other important information about yourself, and perhaps prepare the customer to do business with you. For example, you may want to indicate just what you expect of the customer, as the counterpart to your commitment to him. You might even want to specify what the customer should bring to the initial meeting.
You are obliged to follow the UMB commitments at a customer’s request. Customers who find you through my web site or the UMBA site will expect you to act as an UMB. Customers who come to you from other sources may not. If the customer is unaware of the UMB option, it is up to you to decide whether to explain and offer it, or to operate in the more customary way.
Brokers who are not UMBs can protect themselves against this contingency in some cases, but not in others. Where the broker is able to raise his compensation, it is usually without the customer’s knowledge. This is an underhanded way of doing business, even if the broker feels that the workload justifies it. The cloak of deception that allows such “pricing flexibility” also allows the rogues in the industry to charge whatever they can get away with, whether justified by the workload or not.
The UMB gives up the right to adjust compensation as the transaction proceeds. To protect themselves against being exploited by consumers, they should develop other approaches. They can interview the customer more carefully at the beginning to identify potential roadblocks that may impact the broker’s workload. They can also be explicit in specifying exactly what the broker will and will not do, and what the customer’s obligations are. If the customer drops the ball, they can drop the customer.
A practice of laying out the responsibilities of both parties at the outset should deter customers from treating the broker’s time as if it were a free service.
Brokers who are not UMBs have no way of protecting themselves against multiple-apping. Because most consumers have no way of distinguishing one broker from another, brokers who charged a non-refundable fee would lose business. Furthermore, consumers have maximum incentive to submit multiple apps because they have no other way of protecting themselves against being overcharged. To me, it is surprising that there isn’t more multiple-apping than there is.
Consumers selecting a UMB should have less reason to multiple-app because they have less anxiety about being ripped off. Some UMBs have customers execute exclusive contracts.
I would expect that consumers will seek out UMBs as they become aware of their existence. One of my jobs will be to help promote this awareness, through my newspaper column and web site. But UMBs can also promote themselves, on their web sites, in local media, through their contacts with real estate agents, and in many other ways.
Not at all. UMBs are not subject to price controls. Your obligation is to include the premium in the price you quote the borrower at the outset.
Yes, provided you are prepared to stipulate to the consumer upfront your markup over your wholesale prices. You will be slightly disadvantaged, however, if your wholesale prices are lower than those offered brokers who perform fewer functions.
You explain to the consumer that on some loan types you act as a lender, and that the relationship between you and the customer is different in such case. For example, you might say something like the following:
"On FHA and VA loans, we act as a lender. We will quote our rates and points to you so that you can compare them to those of other lenders. Please bear in mind that our quotes are valid at the time we provide them. We don't try to corral your business by quoting prices that we know we can't deliver, and then use various 'tricks of the trade" later on to get the prices back to where they should be.
On other loans we act as an Upfront Mortgage Broker. In this capacity, we act as your representative (agent) in shopping lenders. For this service we charge a fixed fee, which will be set upfront. Our duty to you will be to shop for the best possible wholesale rates and points and pass them through to you, with no markups or hidden charges."
Why Do I Need a Web Site?
A web site is the means by which you declare who you are and what you do. By placing the UMB commitment on your site, you are announcing to the public that you are prepared to do business in accordance with UMB principles.
Your web site is also the channel through which you will get referrals from the UMBA site, which will list UMBs by URL, not telephone number. Consumers referred to you from my site or the UMBA site will probably have read the pages describing what an UMB is and why a consumer will benefit from doing business with you. They will be informed loan prospects.
A web site also provides you with an opportunity to communicate other important information about yourself, and perhaps prepare the customer to do business with you. For example, you may want to indicate just what you expect of the customer, as the counterpart to your commitment to him. You might even want to specify what the customer should bring to the initial meeting.
How Do I Deal With Consumers Who Aren’t Ready to Deal With An Upfront Mortgage Broker?
You are obliged to follow the UMB commitments at a customer’s request. Customers who find you through my web site or the UMBA site will expect you to act as an UMB. Customers who come to you from other sources may not. If the customer is unaware of the UMB option, it is up to you to decide whether to explain and offer it, or to operate in the more customary way.
As A UMB, How Can I Protect Myself Against Being Under-Compensated In Cases Where The Work Required Turns Out To Be Far Greater Than I Anticipated At The Beginning?
Brokers who are not UMBs can protect themselves against this contingency in some cases, but not in others. Where the broker is able to raise his compensation, it is usually without the customer’s knowledge. This is an underhanded way of doing business, even if the broker feels that the workload justifies it. The cloak of deception that allows such “pricing flexibility” also allows the rogues in the industry to charge whatever they can get away with, whether justified by the workload or not.
The UMB gives up the right to adjust compensation as the transaction proceeds. To protect themselves against being exploited by consumers, they should develop other approaches. They can interview the customer more carefully at the beginning to identify potential roadblocks that may impact the broker’s workload. They can also be explicit in specifying exactly what the broker will and will not do, and what the customer’s obligations are. If the customer drops the ball, they can drop the customer.
A practice of laying out the responsibilities of both parties at the outset should deter customers from treating the broker’s time as if it were a free service.
Can UMBs Protect Themselves Against Multiple-Apping?
Brokers who are not UMBs have no way of protecting themselves against multiple-apping. Because most consumers have no way of distinguishing one broker from another, brokers who charged a non-refundable fee would lose business. Furthermore, consumers have maximum incentive to submit multiple apps because they have no other way of protecting themselves against being overcharged. To me, it is surprising that there isn’t more multiple-apping than there is.
Consumers selecting a UMB should have less reason to multiple-app because they have less anxiety about being ripped off. Some UMBs have customers execute exclusive contracts.
Will Being a UMB Help Me Attract Customers?
I would expect that consumers will seek out UMBs as they become aware of their existence. One of my jobs will be to help promote this awareness, through my newspaper column and web site. But UMBs can also promote themselves, on their web sites, in local media, through their contacts with real estate agents, and in many other ways.
On FHA and VA Loans, I Receive a Servicing Release Premium From The Lender. As A UMB Must I Remit This Premium to the Borrower?
Not at all. UMBs are not subject to price controls. Your obligation is to include the premium in the price you quote the borrower at the outset.
I Am a Correspondent Lender, Delivering Loans to Wholesalers. Can I Be a UMB?
Yes, provided you are prepared to stipulate to the consumer upfront your markup over your wholesale prices. You will be slightly disadvantaged, however, if your wholesale prices are lower than those offered brokers who perform fewer functions.
How Do I Operate If on Some Loans I Act as a Lender, Selling Directly Into the Secondary Market, Rather Than a Broker?
You explain to the consumer that on some loan types you act as a lender, and that the relationship between you and the customer is different in such case. For example, you might say something like the following:
"On FHA and VA loans, we act as a lender. We will quote our rates and points to you so that you can compare them to those of other lenders. Please bear in mind that our quotes are valid at the time we provide them. We don't try to corral your business by quoting prices that we know we can't deliver, and then use various 'tricks of the trade" later on to get the prices back to where they should be.
On other loans we act as an Upfront Mortgage Broker. In this capacity, we act as your representative (agent) in shopping lenders. For this service we charge a fixed fee, which will be set upfront. Our duty to you will be to shop for the best possible wholesale rates and points and pass them through to you, with no markups or hidden charges."