In 2000, professor Jack Guttentag, of the Wharton School of Business, in collaboration with several mortgage brokers developed the concept of "Upfront Mortgage Brokers (UMBs)." An Upfront Mortgage Broker (UMB) is one who has elected to do business in an upfront and fully transparent way. Major differences between a UMB and a conventional mortgage broker (MB) are:

• UMBs disclose their fees to customers in advance and in writing, and disclose the wholesale prices (rates and points) passed through from lenders.  Customers of UMBs pay the broker's fee plus wholesale loan prices

In contrast, conventional mortgage brokers (MBs) add a markup to the wholesale prices, and quote the resulting “retail prices” to customers.  Most MBs reveal their markup only in required disclosures after an application has been submitted.

• The UMBs interests are fully aligned with those of customers.  They can thus represent borrowers in shopping for loans. 

In contrast, MBs shopping the market are often in a conflict situation with customers.  For example:

• The loan type that best meets the customer's needs may not be the one that allows the largest markup for the MB.  
• MBs may profit by ignoring customer requests to lock the rate/points, putting the customer at risk.
• MBs often increase their markup on customers who allow the rate/points to float by not giving them the best available rate (the float rate) when the loan is finally locked.
• UMBs credit customers with any rebates they receive from third parties. Mortgage brokers sometimes receive rebates from lenders or concessions from home sellers.  UMBs credit customers for any such payments that would otherwise increase the broker’s fee beyond what was agreed upon. 

In contrast, MBs may or may not credit customers for payments from third parties, depending on the circumstances.

Our commitment to You

1.   The broker will be the customer's representative or agent, and will endeavor to act in the best interests of the customer.

2.   The broker will establish a price for services upfront, in writing, based on information provided by the customer.

• The price may be a fixed dollar amount, a percent of the loan, an hourly charge for the broker's time, or a combination of these.
• The price or prices will cover all the services provided by the broker. This includes loan processing, for which customers always pay a broker or lender.

·      On third party services, such as an appraisal, ordered by the broker but paid for by the customer, the broker will provide the invoice from the third party service provider at the customer’s request.  Alternatively, the broker may have the payment made directly by the customer to the third party service provider.

3.   Any payments the broker receives from third parties involved in the transaction will be credited to the customer, unless such payments are included in the broker's fee.

·        If the broker's fee is 1 point, for example, and the broker collects 1 point from the lender as a “yield spread premium”, the broker either charges the customer 1 point and credits the customer with the yield spread premium, or charges the customer nothing and retains the yield spread premium.

4.   The broker will use his best efforts to determine the loan type, features, and lender services that best meet the customer's needs, and to find the best wholesale price for that loan.

5.   The wholesale prices from which the broker's selection is made will be disclosed at the customer's request.

6.    When directed by a customer who has met lender lock requirements, the broker will lock the terms (rate, points, and other major features) of the loan, and will provide a copy of the written confirmation of the rate lock as soon as it has been received from the lender. At the same time, the broker will guarantee all fees charged by the lender who locks the rate. (Added January 23, 2006).

7.    If a customer elects to float the rate/points, the broker will provide the customer the best wholesale float price available to that customer on the day the loan is finally locked.

8.    The broker will maintain a web site on which its commitment to its customers is prominently displayed, along with any other information the broker wishes to convey. If the web site displays mortgage prices, the broker will indicate whether the prices are retail or wholesale. If prices are retail, the markup will be shown. If prices are wholesale, a prominent note will indicate that the broker's fee will be an added charge. (Added January 23, 2006).

9.   A broker who displays mortgages prices on its web site must indicate whether the prices are retail or wholesale. If they are retail, the markup must be shown. If they are wholesale, the broker must indicate that the prices do not include the broker's fee.

Copyright Jack Guttentag 2006