Stephen Wheeler – Real Estate Broker

I have been a broker since 1999 and have closed real estate finance transactions in seventeen different counties in California.  My involvement and suggestion in 2001 towards reducing broker abuse of borrowers became the cornerstone piece of legislation finally enacted in 2010 requiring brokers to credit all rebates from lenders directly to borrowers and disclose their fees separately.

I have always endeavored to make every loan that I have closed as transparent to the borrower as possible. Transparency is now more difficult unfortunately due to recent changes in the law that force the broker to choose what is referred to as a borrower paid transaction or a lender paid transaction.

Borrower paid transaction: This means that the borrower pays the broker through escrow for the services and the rebate (yield spread premium) is credit to the borrower in escrow.  However, for some ridiculous reason, the rebate can’t be used to pay the broker’s fee meaning the borrower gets this credit for covering non-recurring closing costs such as title and escrow, prepaid expenses such as pro-rated interest expense, and a small amount of cash out allowed of a couple hundred dollars.  So if there is excess rebate, it’s lost.

Lender paid transaction: With this transaction, the broker sets their rate with the lender, say 1.5% which is fairly typical now and much higher than the traditional 1% charged in the past.  The broker then prices the loan to yield a rebate of 2.5% which is used to pay the broker’s fee and the lender’s charges, and any excess then gets credited to the borrower in escrow for non-recurring closing costs.  This rebate is unlimited as well so any excess is payable to the borrower.

What happens here is that the broker now is in general setting their fee higher which the borrower sees briefly if they look at all the papers they sign in the beginning and then again at the end, as a memo disclosure for the most part.  I will use the borrower paid transaction whenever it appears the borrower won’t have to remit any more money to escrow than they would to cover prepaid expenses, but those loans are rare.  In any case, I do disclose my fees separately in the lender paid transaction and go over this with the borrower in the beginning so that they can see how the transaction works.

My basic philosophy is to treat my clients as I would want to be treated in what is usually the largest financial transaction of their life.  Towards that end I make my best effort to communicate how the process works and what the options are from beginning to end.

I do not generally engage in purchase transactions unless we know each other well.  These transactions tend to be very time consuming and with the new federal laws that prevent us from using a To Be Determined (TBD) as a property address, pre-approval of loans is no longer possible.  This is a disservice to the buyer/borrower and should be changed.  In any event, I am just not willing to charge what I consider to be fair compensation in a purchase transaction because there are enough brokers out there hungry enough to do it for less money.