Mortgage Bankers vs Brokers
A Mortgage Broker is a company or individual (which is generally state licensed) that arrange loans for individuals to buy or refinance homes, but do not use its own funds to fund their client’s loan. Mortgage Broker’s generally have multiple lenders to whom they sell. These companies tend to be smaller (even though there are very large brokers).
A Mortgage Banker is a company that lends money to finance mortgage loans using there own source of funds. Virtually all of the large banks are mortgage bankers. Most mortgage bankers also sell the loans originated at their company through either the sell to another mortgage banker or by making a security out of large groups of mortgages with similar properties and sell these securities on Wall Street to pension funds, mutual funds, REITs, or other qualified investor groups. Some mortgage bankers service their loans and some do not. Servicing is collecting the payments from the borrowers and paying the investors their payment. The servicer also makes sure that the taxes and insurance on the property are paid and foreclose if necessary. They are paid a small fee (generally .25% to .5% of the unpaid balance per year).
Mortgage Broker
Advantages:
- They are smaller and often times can give more individual attention.
- Have multiple lenders, so the rate can be competitive.
- Generally, if they can do FHA and VA loans have more loan products than lenders to assist you as a customer.
- They can use more than one lender to get an approval and give a competitive rate.
- A competent mortgage broker (who can also do mortgage loans) can tailor fit a loan better for the customer, since they are not selling a limited product line.
Disadvantages:
- Generally give slightly higher rates and terms overall.
- They do not approve your loan directly. They are dependent on the lender’s underwriter to give you an approval.
- Their fees tend to be higher than mortgage bankers. This is not always true, but is a general rule.
Mortgage Banker
Advantages:
- They are larger generally that mortgage brokers.
- Their prices are generally lower than brokers.
- Their fees are often lower than brokers.
- They approve the loans the make, so you get the decision direct from the source.
Disadvantages:
- They have a harder time addressing your individual needs and tailor a loan product to meet your needs.
- Generally they sell their own product line limiting the loan products that they might have. This is not always the case, but many also sell their loans, like brokers, to other lenders giving them multiple product lines.
These advantages and disadvantages are not always true, just a limited rule. Some of the largest mortgage bankers have the biggest product lines in the industry, but are higher in price than many mortgage brokers.
What to ask when finding a mortgage lender?
Whether or not you use a mortgage broker or a mortgage banker is not the biggest issue. Below are a set of questions you should ask of any loan officer and that should help you in your decision making process.
Questions to Ask:
1. Can you do both conventional and government loans? Tips: You are looking for someone who can do all types of loans. Many brokers are not FHA or VA approved and that may be the loan you need.
2. What do you consider loan specialty? Tips: You are generally not interested in someone who does sub-prime loans as his/her specialty, because those were easy loans and expense loans. The loan officer might try to take you into a sub-prime loan product as his/her first choice.
3. How long has your company been in business? Tips: do you really want someone who is brand new?
4. How long have you been do mortgage loans? Tips: This is an important question. If they have been doing this for over 5 years, they should have enough experience to complete your loan efficiently and will know more options than a less seasoned loan officer.
5. Do you do anything other that mortgage loans? Tips: many bank officers at large banks who do mortgages also do car loans, installment loans and don’t know mortgage loans thoroughly enough to help you. If they can positively answer the next question then this question is less important.
6. How many loans did you personally close last year? Tips: a good loan officer should have originated and closed at least 60 loans per year or MORE. The loan officer will show he/she is experienced enough and is active enough to keep up with the changes in this business, which are many.
7. How many loans have you personally originated throughout your career? Tips: If the loan officer has originated 250 or more, it shows he is experienced. You want someone who knows what they are doing as well as being honest.
8. Can I lock in the rates while the loan is being processed? If so, for how long? Tips: One of the biggest scams in the industry is to quote you a very low rate at the start and then raise the rate later at closing and blame it on the interest rates going up. Many times that is just not true. You want to know if they will give you a 30 day or better yet a 45 day interest rate quote. If you like the rate (which will be slightly higher, since you are locking in the rate), then lock the rate in. Get this in writing. Rate Locks under 30 days are worthless unless you are already approved, so don’t get them if you are just starting the process. Get one over 30 days.
9. Do you give written lock agreements? Tips: No rate lock in is valid unless it is in writing and signed by a manager or loan officer, so get any rate lock in writing.
10. Are you a member of the National Association of Mortgage Brokers or the Mortgage Bankers Association? Tips: These are the main trade organizations and they have a code of ethics that members are required to meet.
MCA offers a product to protect you against potential mortgage fraud and over-charging. It is called the Consumer Protection Plan. A Mortgage Professional will review your initial mortgage disclosure documentation and when the loan is ready to close the MCA professional will also review your closing settlement documents to make sure you received the correct program, rate and fees as initially disclosed.
