Can A Mortgage Originator Offer A Fiduciary Relationship?
A fiduciary relationship is defined as “a relationship in which one party places special trust, confidence, and reliance in and is influenced by another who has a fiduciary duty to act for the benefit of the party.” When buying a house, you want to know that you can trust all the real estate actors involved in the transaction.
Your real estate agent or broker is by law obligated to offer you a fiduciary relationship: when you hire your Realtor, you enter an agency agreement that engages him or her to act on your behalf and in your best interest. However, can your mortgage originator offer a similar relationship?
The answer is not clear cut and varies depending on the state, so you will need to do in-depth research before engaging yourself.
In many states, a mortgage broker has fiduciary obligations toward the borrower, while a mortgage lender does not. They both provide access to home loans, but that is where the similarities stop.
What are the duties of a mortgage lender?
A mortgage lender is a financial institution, like a bank or a credit union for example, who funds the loans and offer them directly to the borrower. If contracting a loan with a mortgage lender, you will work directly with a loan officer, who is an employee of that institution. He or she can give you access to the home loans programs offered by the lender.
The most significant advantage is that, in case of issues, the process is relatively straightforward since you only deal with one interlocutor. Besides, if you already have an established relationship (if you are a long-term client of the bank for example), the lender already has access to your information and might be willing to give you a discount.
However, you will need to apply to each bank and mortgage company individually, which can be a hassle given the differences in mortgage terms and interest rates. In addition, a mortgage transaction through a lender is considered an “arm’s length transaction,” and the borrower needs to keep in mind that the lender’s interests lie in making money, not in keeping his/her best interest at heart. There is no fiduciary relationship between the borrower and the mortgage lender.
What are the duties of a mortgage broker?
On the other hand, a mortgage broker acts as a middle-man between you and the mortgage lender. The broker will be your sole point of contact and will shop around on your behalf with different mortgage lenders to present you the various quotes at once.
Working with a mortgage broker may save you not only time but also money since they may have access to discounted mortgage rates compared to what you would get at retail. In most cases, they get paid through the lender and receive a percentage of your final loan value. In many states, mortgage brokers contract a fiduciary relationship with you. They are legally liable to make sure that you understand what the implications of the loan are you are contracting are, including the associated expenses, whether it is the best loan available for you depending on your credit score, and so on.
On the other hand, mortgage brokers may not be as familiar with the intricacies of different loans. When choosing a broker, try to find someone who has extensive experience in your market and has good working relationships with several mortgage lenders.