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# With some brokers, you’re borrowing time
- URL: https://www.smdp.com/with-some-brokers-youre-borrowing-time/
- Published: 2007-02-14T16:00:00.000Z
- Updated: 2026-10-24T23:13:22.000Z
- Author: Guest Author
- Tags: Opinion, Santa Monica, #archive-import

*By Mike Heayn Real Estate 101*

WITH ALL THE REGULATION AND government oversight of the real estate industry, it seems many consumers are still in the dark about many aspects of it’s operations. One of these mysterious areas are fees paid during the closing of the sale of a property, fees that include payment to people such as the mortgage broker. Consumers who choose mortgage brokers want to know how they are paid if the broker does not charge an upfront fee. This is where lender rebates come into play.

First, let me define a mortgage broker. If you are busy or do not want to shop for a loan yourself, you could hire a mortgage broker to locate and apply for the best loan for you. In theory, the mortgage broker would try to find you the best rate and terms for your specific needs. The mortgage broker would also do the paperwork (i.e. — help you fill out an application and package the loan for the lender). However, the reality is that some mortgage brokers do not look out for their client’s best interests. A mortgage broker is in the business of making money by placing the right person with the right loan. He or she is paid through escrow by the borrower directly or by the lender in the form of a rebate.

Mortgage brokers can place what is known as a fee demand letter into escrow. A fee demand letter is signed by the client or borrower and usually states that the client will pay the broker ‘x’ amount for services rendered. Usually, a broker demand letter will state that the mortgage broker is paid even if he/she does not locate the loan for the borrower. The reason brokers do this is to protect themselves from unscrupulous borrowers. The last thing someone wants to do is waste his or her time on a deal that is not going to happen.

However, in the near past, lenders have come up with an interesting way of paying mortgage brokers. Lenders began offering brokers rebates. A lender rebate can work many different ways. However, the basic premise is that the lender pays the broker through escrow under a category known as POC — paid outside of closing costs. Nevertheless, when the lender pays out a rebate, the borrower pays an increased interest rate on their new loan. The rebate may change as the rate increases. For example, a lender may offer a mortgage broker a 1 point or 1 percent rebate if the borrower takes a loan rate of 6.75 percent. If the borrower takes a rate of 7.5 percent, the lender may offer a rebate of 2 percent to the broker. Over time, the lender will usually more than makes up any rebate that was paid out to the mortgage broker, based on the increased interest rate.

As you can see, the borrower’s best interest may not be on the mortgage broker’s mind.

Some states allow brokers to close the loan in their name, which legally makes them the lender. The actual lender becomes a secondary market purchaser. When the broker sells the loan back to the lender, the rebate is concealed. For example, if a lender offers a broker rebate of 2 percent on a loan with a 7.5 percent rate, the deal would be funded in escrow under the broker’s name and sold back to the lender at 98 percent of the loan amount, thus eliminating the rebate from the closing statements.

Like any sales position in any industry, some people are professional and honest at what they do, while others are not. Mortgage brokers do serve an important purpose for some borrowers and the good ones stay in business because they do a great job for their clients. However, it is a good idea to make sure you get all the facts before getting a loan from a mortgage broker.

MIKE HEAYN is a Washington Mutual multi-family loan consultant. He (310) 428-1342 or

*Originally published in the Santa Monica Daily Press print edition on February 14, 2007.* [Read the original PDF.](https://s3.us-east-1.amazonaws.com/smdp%5Fbackissues/021407.pdf?ref=smdp.com)