Mortgage Broker, Mortgage Banker, or Retail Banks

by Tom Tousignant

in Blog, Home Buying, Mortgages, Refinancing

It’s a tough time to be a mortgage broker.  For the past few years, brokers have been blamed for everything from sub-prime loans, to predatory lending, to foreclosures.  At least they haven’t been accused of causing global warming (yet).

As a result of all the bad press brokers received over the past few years, they have been squeezed by both lenders and consumers.  It used to be that mortgage brokers got wholesale access to lenders’ rates and they could match up a borrower with a lender and get paid for ‘brokering’ that transaction.  The lender won because the didn’t have to sponsor golf tournaments or football stadiums to attract customers for their mortgage loans, and the borrower had someone that could shop for the best rate and guide them through the often complicated mortgage process.

Over the past year, however, lenders have increased the rates they offer to brokers or cut them off completely – for example, Wachovia and Chase stopped working with brokers during the past year.

Many borrowers have read the bad press and responded by working directly with the local retail bank, or with the lender that is currently servicing their mortgage.  They benefit by working with a lender that controls the process, but they give up the rate shopping ability that good brokers used to enjoy.

Mortgage Bankers still have flexibility

The third type of mortgage provider is a Mortgage Banker.  Mortgage Bankers are different from brokers in that they lend their own money and they control the process from application to closing.  Brokers have to give up control after application and then hope the loan gets approved on time for closing. (There are a lot of prayers in a broker shop as closing dates get closer).  Mortgage Bankers, however, don’t service the loans after closing.  After closing, a banker will transfer the servicing of the loan to a lender.  This transfer of servicing gives the mortgage banker a key advantage.  When a Mortgage Banker wants to lock in the interest rate, they get to choose the lender, or servicer, that is offering the best rate on that day. As a result, the Mortgage Banker can still shop for the best rates. A broker can shop but doesn’t get offered the best rates, and a retail bank or mortgage servicer can’t shop rates at all.

When it comes to choosing a mortgage provider, there are 4 P’s to consider:  Product, Price, Process and Person.

 

Product – what if I have a special situation?

Price – can you get a competitive rate?

Process – who controls the application?

Person – who is my direct point of contact?

Mortgage Broker

Very Good Not so good anymore No Control Varies
Mortgage Banker Very Good Shops for best rates Full Control

Varies

Retail Bank Limited Limited – No Shopping Full Control Varies
Servicer Limited Limited – No Shopping Full Control

Varies

 Mortgage Brokers and Mortgage Bankers can work with different lenders to get the widest variety of mortgage products – for unusual homes, or unusual borrower situations.  Retails banks and servicers are limited to one product line.

 Mortgage rates are limited to brokers, and Retail Banks and servicers are limited to only their rate sheets.  Mortgage Bankers can still shop for the best wholesale rates for their borrowers.

 Process:  Mortgage Bankers, Retail Banks, and Servicers all control the process.  Mortgage Brokers send the file to the lender and only can hope for the best.

 Person – this is your actual loan originator.  In every mortgage channel, there can be great loan officers, and, of course, not so great loan officers.  A personal referral, experience, or professional designations can all give you a better shot at dealing with the right person.

 So, it’s not as simple as dialing a number and saying, “What are your rates?” any more.  Make sure you can get the right person along with the best combination of the other mortgage ‘P’s’ when it’s time for a new mortgage.

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