The Difference Between a Mortgage Banker and a Mortgage Broker
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.
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 brokersare 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