Mortgage Brokerage

Exam rule

A mortgage broker brings a borrower and an authorized lender together, and for compensation may solicit, process, place or negotiate a mortgage loan for another person. A mortgage banker makes the loan, advancing funds or committing to advance them, and selling that loan after closing does not turn the original lender into a broker. An MLO, or mortgage loan originator, is the individual who takes an application or offers or negotiates loan terms. A servicer receives scheduled payments after closing and passes money to the loan owner and others. These roles can sit in related companies. The legal work still differs. A commitment is the lender's written promise to lend on stated terms and conditions. It is not issued because a broker likes the file. A nonconforming loan falls outside standard Fannie Mae or Freddie Mac purchase rules, and a jumbo loan is the common example. Nonconforming does not mean illegal, denied or predatory. A broker may compare lenders that offer such products. The lender still underwrites, approves and funds. For the New York exam, remember the normal rule that a broker arranges and a banker lends. New York law has a narrow approved FHA correspondent path. That exception does not change the basic exam distinction.

Exam rule

New York's Department of Financial Services, or DFS, regulates mortgage activity under Banking Law. A mortgage broker business registers with DFS, while a mortgage banker is licensed by it. An individual MLO needs a license before taking applications or offering loan terms. The Nationwide Mortgage Licensing System and Registry, or NMLS, handles filings and records, but it does not replace DFS as the New York regulator. A company and its worker follow different tracks. A broker registration does not license every person to originate. An MLO license does not let the individual operate an unregistered broker company. Banks, credit unions and other listed institutions can be exempt organizations. Exempt is not unregulated. A licensed mortgage banker may also broker loans without a separate broker registration. An ordinary broker cannot lend on a registration alone. New York gives no one-loan exception for entering the mortgage brokerage business. A sales commission alone does not make a real estate licensee a mortgage broker. A separate fee for mortgage work ends that exception. The real estate license does not allow paid loan negotiation or a paid referral. An out-of-state firm can still need New York authority for covered work involving New York residential property, and approved offices and branches must use the correct company authority. Check the firm, the individual and the activity.

Exam rule

A New York mortgage broker must act in the borrower's interest. That means reasonable skill, care and diligence, good faith and fair dealing. It may not take undisclosed compensation, and it must disclose material information and total compensation within the required time. Banking Law sets an outside deadline of three days after receiving the application for specified material information. The broker must work diligently to present an appropriate range of loans the borrower likely qualifies for, using known facts and facts obtained in good faith. The broker may ask an appraiser to fix factual errors or explain a value, but may not push for a false or unsupported one. Compensation may not be based on a loan term or a proxy for one, though a percentage based on principal can be allowed within the federal rule. If the consumer pays the loan originator directly, another person generally cannot also pay transaction compensation. That is the federal dual compensation rule. A loan originator may not steer a borrower to increase its own pay, and any recommended loan must serve the borrower's interest. New York's pre-application disclosure comes first. It arrives before taking the application or collecting any listed early fee, earlier than the three-day rule. The agreement explains the broker's advisory and administrative work. It says the broker cannot make a loan, issue a commitment or promise approval. It discloses broker fees, early fees, refunds and any known fee division. Only one application fee and one processing fee may be collected. For TRID-covered loans, the consumer must receive the Loan Estimate and indicate intent to proceed before any application or appraisal fee is charged. A bona fide, reasonable credit-report fee has a narrow exception. The state form does not waive these federal timing rules. A broker must refund excess third-party charges, and may not take a deposit merely to induce processing. The form also covers designated lenders, private lenders and any prepayment penalty.

Exam rule

Mortgage dual agency has a special meaning in Subject 18, and it arises when the same person or entity acts in two capacities. The firm is the seller's real estate broker and the buyer's mortgage broker in the same residential sale. New York requires disclosure of this dual role at the first substantive contact with the buyer. Both buyer and seller must sign the prescribed disclosure before the firm provides mortgage brokerage services. If the broker expects to use three or fewer lenders and has a regular relationship with them, it must disclose that relationship at the first substantive contact too. These steps let both parties see how the roles can pull toward different interests. The firm should not confuse this form with the real estate agency disclosure under Real Property Law. Common ownership between settlement providers can create a separate federal issue. An affiliated business arrangement needs a written relationship and charge disclosure, and the person making the referral generally cannot require the consumer to use the affiliate. The allowed return is tied to ownership, not referral volume. A New York dual agency form does not replace the federal affiliated-business disclosure. Three pricing terms also need clean labels. The pre-application and fee agreement describes the broker's services, limits and compensation. It is not a loan approval. A rate lock protects stated rate or point terms through a stated period, subject to the agreement. It does not promise that underwriting will approve the borrower or property. A lender rebate or lender credit reduces listed closing costs, and it can be tied to the loan's pricing, so compare the whole loan. A lender-paid broker bonus is compensation to the broker. It is not the borrower's lender credit. The broker must disclose that compensation as required. Federal law still bars compensation based on loan terms and generally bars pay from both sides.

Exam rule

Prequalification is an early estimate of borrowing ability based on stated or limited information, while preapproval usually reflects more review of credit, income, assets and debts. Industry use of both terms varies. Neither term by itself guarantees a loan. Ask what was verified, how long the letter lasts and what conditions remain. A full application starts the formal loan process, and the broker may collect documents and help process the file. Underwriting belongs to the lender. The underwriter reviews the borrower, the loan and the property. Approval can remain subject to appraisal, title, insurance, updated credit, verified funds or other conditions. A mortgage commitment is the lender's written agreement to lend on stated terms if its conditions are met. Some preapproval programs already issue such a commitment after a full credit review. Under Regulation C, that kind of preapproval can still depend on a suitable property, on no material change in the buyer's finances, and on certain other limited conditions. Compare the actual documents, not just their labels. A commitment can be real and still conditional. A rate lock answers a different question. It addresses pricing and expiration, not credit approval. The mortgage broker helps move information between borrower and lender, the banker or exempt lender decides and funds, and a servicer handles payments after closing. A real estate license alone does not authorize paid mortgage origination. A real estate licensee may give general information and make an unpaid introduction. The licensee may not accept value for referring federally related settlement business. Taking an application or negotiating terms for compensation can require mortgage authority. Payment for actual, necessary and distinct services may satisfy RESPA. It does not erase New York licensing rules. The real estate brokerage fee-sharing exception applies only when all parties act in real estate brokerage roles. It does not cover a mortgage referral fee.