Types of mortgage brokers

Pure mortgage broker: A pure mortgage broker (PMB) acts solely as a broker. A PMB meets with a potential borrower and gets their financial information. The borrower deposits funds with the PMB to pay third-party costs. This money is placed in a trust account. After getting the necessary information from the potential borrower, the PMB prepares the loan application and “shops” the application with potential lenders. If the application is accepted by a lender and the loan closes, the PMB receives a fee for these services. The fee is usually called a “loan origination fee” for getting the loan for the borrower. The fee received by the PMB is subject to the B&O tax under the Service and Other Activities tax classification.

Correspondent mortgage broker: A correspondent mortgage broker (CMB) makes loans in its own name with funds provided by a bank or other entity. The CMB is required to transfer the loan to, or on behalf of, the same entity. The CMB is identified on the closing documents as the lender. In this case, the CMB must transfer the loan to, or on behalf of, the same lender who advanced it the funds. Therefore, the CMB is merely the agent for the lender and does not bear the risk of interest rate fluctuations, etc. The fee, usually the loan origination fee, received by the CMB is subject to the B&O tax under the Service and Other Activities tax classification.

Lending mortgage broker: A lending mortgage broker (LMB) uses its line of credit or other funding source without the obligation to sell or assign the loan to the party providing the funding. In this situation, the LMB is the person advancing the funds to the borrower and bears the risk of interest rate fluctuations. As a lending mortgage broker, the net loan origination fees (gross loan origination fees less direct loan origination costs) are interest on its investments or loans. It may be deducted from the B&O tax if the loan is primarily secured by a first mortgage or a trust deed on non-transient residential property.