Mortgage brokers and bankers: here's some things to consider before using one.

When Carolyn and Hugh Mann's (not their real names) $10,000 balloon mortgage payment came due, they didn't have the money to pay it. So, they went to a mortgage banker for help.

"We were really anxious because we knew we could lose our home," Carolyn says. "Luckily, the mortgage banker arranged a loan that paid off the balloon payment and refinanced what was still owed on the house." With balloon financing, a huge payment is due when the loan term ends. The Manns' refinanced loan dropped their monthly payment from $1,400 to $978.

Fortunately for the Manns, their story has a happy ending. But exactly what are mortgage bankers? And is it always a good idea to use them?

Mortgage bankers are institutions or individuals who use their own funds as well as money from other sources to create mortgages. They typically service the loans they make, that is, they collect the principal, interest, taxes and insurance that make up the monthly payment. Mortgage brokers, on the other hand, simply match those who need mortgage money with interested investors, and they work with multiple financing sources. Mortgage brokers handled 65% of all mortgage financing in the U.S. in 1994; mortgage bankers arranged nearly two million of the over six million loans made that same year.

A CHECKLIST OF QUESTIONS

When running down to the office of the mortgage banker or broker nearest you, take a checklist of questions. According to Patty McGill, president of the National Association of Mortgage Brokers in Frederick, Md., be sure to ask how long they've been in business. Look for experience and staying power.

Ask for referrals; a reputable company will be happy to provide them. Call the licensing bureau and make sure their license is up-to-date. Ask friends and business associates--your real estate agent, accountant or lawyer--for recommendations. In a sense, "interview" the lender you hope to do business with. Make sure your questions are being intelligently answered. If not, keep shopping around.

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Don't forget to ask about up-front fees, because some leaders will refund your money if you're not approved for the loan. Up-front fees may include a charge to fix a rate or to do an appraisal or credit report.

Mortgage brokers are regulated by the Real Estate Settlement Procedures Act under the auspices of the Department of Housing and Urban Development. In addition, many states have licensing requirements. Mortgage bankers are regulated by state banking departments, and many states require them to be licensed as well. Check with the consumer credit or securities agency of your state

Mortgage bankers and brokers typically have access to a broader spectrum of mortgage programs than banks do. They may offer more personal customer service and in general are more user-friendly. For example, some companies accept applications over the telephone. And there is at least one mortgage banking company, the Federation of Financial Institutions (800-872-3535), that focuses on assisting African Americans in obtaining mortgage loans. If your credit history is blemished, mortgage brokers and bankers may explain what you can do so they can work with you in the future.

If your credit is really bad, be aware that mortgage bankers and brokers may offer you a deal "priced according to risk," says Paul Mondor of the Mortgage Bankers Association of American in Washington. Essentially, that means you'll pay a higher interest rate. Don't rush to accept such deals, however. Instead, look for a lender who will show you how you can qualify for the best rates, albeit at a later date.