In the United States, dynamic real estate markets and a well-developed system of loan generation and lending have led to the development of money markets and their secondary markets. The mortgage marketing to clients or house buyers through the realtors is a type of lending scheme which exists in the secondary market of the loan section of the money market. Let’s decode this complex concept.
Mortgage Loans, Money Markets and Secondary Markets
Every nations economy is consists of several different markets, money market and the securities market being the most of all. The money market is made up of all products and commodities which are directly related to money. These can involve currency, Forex, other foreign currencies, governmental certificates, certificates of deposits and some specified schemes of the market. Mortgage loans, private, public, the one’s generated by Federal Home Loan Banks, Farm Credit System and by the Federal National Mortgage Association, bank loans and loans by financial institutes are some loans which are a part of the money market. Now when it comes the money markets, there are two key sub-markets within it. The first one consists of banks, lenders and financial institutes which actually originate or generate the said loan. This is the primary market and there are several cases where the mortgage company or the originators of the loan have let the loan directly to the consumer/borrower. In other cases, the primary market originators of the loans, sell these loans to lenders and mortgage companies such as mortgage brokers, Freddie Mac and Fannie Mae, or banks professional lenders who act as agent-lenders and handle the lending, underwriting, and collection and share the risk of the loan. This kind of market is known as the secondary market of the loan (i.e: where the loan is originated by one party and is sold to the second and then on, let to the third). The mortgage marketing is one such example, where the realtors and estate agents work on partnership and close collaboration with the mortgage lenders and brokers of the secondary market.
The realtors, in some cases, also have act as mortgage brokers themselves acting as agents of the originating mortgage companies. In other cases they are partnered by another mortgage broker or mortgage company. This kind of functional arrangement is valid in most of the cases, however there are certain situations where it’s explicitly banned. The validity depends upon the state laws and also the rules and norms of real estate agent licensing policy of the Department of Real Estate or Department of Licenses. In some cases, where the realtor is a member of organizations such as National Association of Realtors (NAR), Realtor Political Action Committee (RPAC) or National Association of Real Estate Brokers (NAREB), then he may have to adhere to the compliance of these bodies, which in some cases may curtail such a mortgage marketing.How Does it Exactly Work?
As a consumer, here’s what you need to know to understand mortgage marketing to realtors:
When you make a contract with real estate agent or realtor to find he right real estate for you, the mortgage broker working with the realtor or the realtor acts as the underwriter of the loan and also makes the pre-approval or approval of the loan, whatever is needed. Apart from that while underwriting the loan the realtor or broker is able to get you the best interest rates possible on the loan. There are three primary advantages of having such an arrangement:
One you get really good terms and conditions on the loan, which are quite consistent with the value of the property you have bought.Second advantage is that you will have to pay relatively low closing costs and all the legal paperwork which is involved at that stage is absent.The third advantage is that you don’t have to go about hunting for the loan, instead you get loan and the approval ready-made on front of you.
The big disadvantage is that since this arrangement is basically a mortgage brokerage of the loan, you will be facing a slightly higher interest rate as compared to the loans which are handed over from the originator to the borrower.
On the whole it’s not that bad an arrangement, and if looked at it from an eagle’s eye point of view, it’s as good as the loan borrowed from a bank or an originator. However, I would advocate that you calculate the two transactions for comparison.