Looking for a Sub-Prime Home Loan? Save with a Mortgage Broker, Study Says

For almost anyone considering a property purchase, a mortgage broker is a cost-effective option.

Never is this more the case, however, than in the sub-prime home loan market, according to a joint study released by economists at George Washington and Oklahoma State universities.

The study compared sub-prime loans originated by brokers and traditional lenders, such as banks, between 1995 and 2003. Its findings reveal the reason brokers originate more than 50 percent of all residential loans is because they are a more efficient and cost-effective option for consumers.

“Brokers are small business men and women who have to be competitive to remain in business,” said NAMB President Harry Dinham. “The hard data in this report is a clear sign that this competition is benefiting consumers in the sub-prime market.”

Dinham said it’s unfortunate that some groups have tried to use anecdotal evidence to accuse brokers of encouraging consumers to choose loans that are more profitable for the originator. This is commonly called “steering.”

“The evidence does not support the hypothesis that customers of brokers generally pay higher prices than customers of lenders because of steering,” the study said. “One can conclude only that in the sub prime market brokers’ customers generally paid less than lenders customers.”

A sub-prime loan is a general term used for a bad credit mortgage loan. It’s taken advantage of by borrowers that have a less than ideal credit score.