The Difference between a Mortgage Banker and a Mortgage Broker
One of the questions I am
most frequently asked is where do I get a mortgage? Well, there are two
primary channels that a consumer can obtain a mortgage loan – mortgage banks
and mortgage brokers. Each of these groups have their own distinct advantages
and disadvantages.
Mortgage Banks:
Generally, when
people in the industry refer to mortgage banks, they are often talking about
large retail banks such as Bank of America, Wells Fargo, Washington Mutual,
etc. What makes these companies mortgage banks is that they lend their
own money for mortgage loans. In other words, when you get a loan at Bank
of America, they are actually writing the check at the closing.
Mortgage Brokers:
Mortgage brokers
are middlemen who put home buyers and mortgage banks together. In other
words, mortgage brokers do not actually lend their own money, but coordinate
obtaining funds for you among the many different mortgage banks. Most
mortgage brokers are small Mom & Pop business that is usually not known
outside of their local markets. However, there has been a lot of
consolidation in the industry and there are some large brokerages that are
gaining in brand recognition.
Personally, I favor
mortgage brokers because on average they tend to be more competitive.
Mortgage brokers do not have an allegiance to one particular bank and have the
ability to find the best deals for their clients. When dealing with a
mortgage bank, all you have access to is that particular bank’s mortgage
products and rates, which may or may not be competitive for your situation.
Additionally, if you need a niche loan product or have credit issues, you are
definitely better off with a broker. I also believe that the best loan
officers tend to work for brokerages. Many banks use low paid call center
workers and telemarketers to work as loan officers. Also, many loan
officers work at banks early in their careers to get training and switch to
brokerages where they can earn more money once they have built a sustainable
client base.
Many people falsely
believe that they can save money by going to mortgage banks directly instead of
through a Arizona Mortgage Broker. What they fail to realize is that mortgage brokers obtain
WHOLESALE interest rates from mortgage banks. The rates that a broker
gets from Wells Fargo or any other retail bank are substantially different than
the rates that would be offered if you went to that bank directly. The
reason is that it is cheaper for a mortgage bank to offer their products to
brokers at a discount and allow the brokers to add in their profit accordingly
rather than to try to hire, train, and manage their own sales force.
Simply put, mortgage brokers are like an outsourced sales force for mortgage
banks. The general market agrees with my assessment as about 60% or so of
mortgage loans are originated through brokers.
Mortgage banks do have
their strengths. First, many people prefer to deal with recognizable
brand names. Second, because they are making the lending decision, they
can be more efficient in some cases. Need a loan closed in a week?
You might have a problem getting it done through a traditional mortgage broker.
The downside to mortgage brokers is that there tends to be a
“used car salesman” component to the business. A few bad apples spoil it
for the true professionals. With very little regulation and ridiculously
low barriers to entry, mortgage brokerages can also attract some shady
characters. As a result, it is important that consumers make sure they
are dealing
with a reputable mortgage brokerage and loan officer. Again, it isn’t
about the interest rate quote, but the person you are dealing with.
Regardless if you choose a mortgage bank or a mortgage broker to handle your deal, it is important to
check references, rates, and fees to ensure you are receiving a competitive
offer.
Big Daddy Dennis Hard Money Lender
Level 4 Funding LLC
23335 N 18th Drive Suite 120
Phoenix AZ 85027
623-582-4444
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