It is a different story for consumers with low or irregular incomes, with blemished credit records, or with limited education or financial sophistication. Home loans are readily available in the subprime market but borrowers pay much more. In addition to paying more, the subprime borrower may be subject to predatory practices, such as flipping, packing, and equity stripping. The stakes are especially high in these loans because the borrower's home is at risk if he cannot maintain the monthly payments. Most consumers who contact a mortgage broker expect the broker to arrange a loan with the best terms and at the lowest possible rate.
Most mortgage brokers do just that, and charge a reasonable fee for their services.
However, in the subprime market, there are mortgage brokers who do just the opposite. That is, the broker will attempt to sell the borrower on a loan with the most fees and highest rate possible so that the broker will get more compensation. Some of these brokers may charge fees of 8 to 10 points. In addition, the broker may get additional compensation from arranging a higher than necessary interest rate for the consumer. Before contracting with a mortgage broker, the consumer should understand how the broker is going to be paid.