Mortgage Brokerage

Exam rule

A mortgage broker brings a borrower and an authorized lender together. For compensation, the broker may solicit, process, place or negotiate a mortgage loan for another person. A mortgage banker makes the loan. It advances funds or commits to advance them. Selling the loan after closing does not turn the original lender into a broker. A mortgage loan originator, or MLO, is the individual who takes an application or offers or negotiates loan terms. A servicer receives scheduled payments after closing and sends money to the loan owner and other parties. These roles can sit in related companies, but the legal work still differs. A mortgage commitment is the lender's written promise to lend on stated terms and conditions. It is not issued merely because a broker likes the file. A nonconforming loan falls outside standard Fannie Mae or Freddie Mac purchase rules. A jumbo loan is one 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

The New York Department of Financial Services, or DFS, regulates mortgage activity under Banking Law. A mortgage broker business registers with DFS. A mortgage banker is licensed by DFS. An individual MLO generally needs an MLO license before taking applications or offering loan terms. The Nationwide Mortgage Licensing System and Registry, or NMLS, handles filings and records. NMLS does not replace DFS as the New York regulator. A company and its worker therefore follow different authority 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 does not mean unregulated in every respect. A licensed mortgage banker may also broker loans without a separate broker registration. A normal broker cannot lend merely because it has a registration. New York gives no simple one-loan exception for entering the mortgage brokerage business. A real estate licensee is not treated as a mortgage broker when no mortgage-service fee is accepted. That narrow rule does not permit a paid referral or paid loan negotiation. An out-of-state firm can still need New York authority for covered work involving New York residential property. Approved offices and branches must use the correct company authority. Always check the firm, the individual and the activity.

Exam rule

A New York mortgage broker must act in the borrower's interest. It must use reasonable skill, care and diligence. It must act in good faith and deal fairly. It may not take undisclosed compensation. 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. It must use known facts and facts obtained in good faith. The broker may ask an appraiser to fix factual errors or explain a value. It may not push for a false or unsupported value. Compensation may not be based on a loan term or a proxy for a term. 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. Any recommended loan must serve the borrower's interest. New York's pre-application disclosure comes before taking the application or collecting listed early fees. That is earlier than the separate 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 guarantee 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 the transaction. A broker must refund excess third-party charges. It may not take a deposit merely to induce processing. The form also addresses designated lenders, private lenders and any prepayment penalty when those items apply.

Exam rule

Mortgage dual agency has a special meaning in Subject 18. 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 the mortgage dual agency disclosure. The buyer and seller must understand that the two roles 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. 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. It can be connected 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. 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. 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 stronger than a preapproval. It is the lender's written agreement to lend on stated terms if listed conditions are met. A commitment can therefore 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. 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.