Mortgage Confidential: Mortgage broker vs. banker
Filed under: Debt, Real Estate, Saving, Mortgage Confidential
Mortgage expert David Reed invites Walletpop readers to ask him questions about real estate financing. leave your questions in the comment section of this post.
Which is the better choice, a mortgage broker or a mortgage banker? First, let's dig a little deeper and find out exactly what each of these terms mean.
A mortgage broker does not lend money nor make a mortgage but instead finds a mortgage from other lenders on behalf of their client, the buyer. A mortgage banker places a mortgage directly to the buyer from its own funds. Does that make the mortgage broker more expensive?
No, because the mortgage broker has access to other mortgage company's loans at a discount, mark them up to "retail" and can compete with any direct lender. Much like an independent insurance agent who shops around for the best deal. In fact, that's an advantage mortgage brokers tout...having the ability to shop for the best deal. A mortgage banker can't shop around, they use the interest rates and fees set by their company. So if the broker can shop around for the best deal, isn't the broker the better choice? Not necessarily.
Mortgage rates from one company to the next can't be all that far apart because lenders price their 30 year fixed rate mortgage on the very same index. One lender can't be at 5.00% while everyone else is at 5.50% for instance. There is no secret lender who has the best mortgage rate.
Mortgage bankers have an advantage simply by having more control over the loan process. When there's a mistake or a problem, the banker fixes it internally. When a loan goes through a mortgage broker and there is a mistake or a problem, the problem takes longer to resolve simply because there are more channels that problem must go through. I know these things because I started out as a mortgage broker in California and am now a mortgage banker in Texas.
It used to be said that a mortgage broker can also find a lender that will make a "special" mortgage perhaps for those with damaged credit or hard to prove income. While that was the case maybe a year ago the fact is that there are very few differences in mortgages today. What a broker has, a banker has.
So which is better? Neither is better, both have their advantages. The trick is finding a loan officer you can trust to guide you through the mortgage process at competitive rates, regardless of their moniker.
Real estate finance expert David Reed is president of CD REED Mortgage Bankers in Austin, TX and author of Mortgage Confidential: What You Need to Know That Your Lender Won't Tell You and Mortgages 101: Quick Answers to over 250 Critical Questions About Your Home Loan.
Recent Posts
- Woman finds $100,000 baseball card; tries to sell it for $10 (1/08/2009)
- Analysts say unemployment makes a bad year to buy a home (1/08/2009)
- Obama stimulates luxury economy: Ritz-Carlton inauguration package sells for $99,000 (1/08/2009)
- Another casualty of the economy: larger classroom sizes (1/08/2009)
- Late loan payments hit a record high (1/08/2009)
Reader Comments (Page 1 of 1)
5-22-2008 @ 7:14PM
KEEN WILSON said...
THE MORTGAGE CO. WILL NOT RETURN PHONE CALLS, THEY KNOW YOUR ARM IS ABOUT TO ADJUST, IF YOUR PAYMENT IS 5K A MONTH ON A HOUSE WHOSE VALUE HAS FALLEN IN THE CRAPPER AND IS NO LONGER WORTH WHAT YOU PAID FOR IT WHY CANT YOU JUST LEAVE IT???
THE CO(COUNTRYWIDE) WONT RETURN CALLS, THEY LEAVE YOU ON HOLD FOR HOURS, THE LOCAL BRANCH OFFICERS CANT HELP YOU...
WHAT ARE YOU SUPPOSED TO DO.. WHATS LEFT TO DO...
I CAN LIVE IN A HOTEL CHEAPER THAN PAYING 5K A MONTH, SAVE 180K AND IN 3 YEARS BUY A NEW HOUSE IN CAROLINA AND PAY CASH,, WHY WORRY ABOUT A BAD CREDIT SCORE FROM A FORCLOSURE...
THERE WILL BE THOUSANDS OF THEM. AND WHEN THE MARKET RECOVERS... THEY ARE GOING TO MAKE A WAY FOR FOLKS TO BUY HOMES AGAIN...
IM WALKING!
WHAT CAN THEY DO TO ME...?
Reply
5-22-2008 @ 7:22PM
David said...
Hi Keen- A couple of thoughts; one, your reset may not be as high as you think and two it could depend upon state laws of what a lender "can do to you."
First, if you have a conventional loan that is about to reset, current indexes and margins mean your new rate would adjust to about about 4.50%, or a 1 yr Treasury index of 2.00 with a 2.50 margin. That's really, really low. On the other hand, if the initial loan is subprime or alternative in nature then margins are much higher, perhaps as much or more than 8.00%, putting your new rate closer to 10.00%. When you're within 60 days of your reset, you should receive your notice from your lender on what your new rate will be.
Second, some states require that mortgage loans be "non-recourse," meaning that if you walk away from your home and live in a hotel somewhere the lender can't sue you for the balance owed if the foreclosure sale doesn't bring in enough money to cover the outstanding loan balance. The lender swallows the big mortgage enchilada. If, however, you live in a recourse state, you may be liable for additional outstanding balances.
5-26-2008 @ 5:16PM
Mandy said...
We had a deed in lieu 2 years ago in November. Since then we have moved, improved our credit by at least 100 points and our bank says the deed in lieu will drop off this November. They said to wait until November to buy a house. Should we wait that long, or should we try to get a home now? Also - what can we do to improve our position to receive a loan, will we have to get a subprime loan? Will there be subprime loans available in the future?
Reply
5-26-2008 @ 7:06PM
David said...
I would suggest sitting on your hands for now and give your credit scores more time to heal. I'm not sure how your credit report reads but lenders may view a deed in lieu of foreclosure with the same regard as a foreclosure, and you might have to wait four years for conventional lending and until November for government loans, such as VA and FHA mortgages.
Unless the old bank specifically takes the deed in lieu information out of the credit report, still be prepared for it to show on your various credit reports as the three credit repositories currently have that data stored in them.
It's also important to not apply for any more credit or charge up your credit cards...this will help your scores out come November.
Reply
6-03-2008 @ 10:36AM
ianspellin said...
Hi:
So we have the classic is-now-the-time/can-we question. We have a $500,000 30-year interest only loan at 6.85% and we think we can do better than that. Countrywide, our lender, says they can't do better and said that's the case even though, at least temporarily, we'd qualify for a conforming loan rate rather than a jumbo loan rate (as the gov't has raised the cutoff point in NJ to $700K-plus). So, shouldn't we be able to get our rate BOTH lower and fixed? Any suggestions on how/where to chase a lower rate?
Reply
6-03-2008 @ 10:41AM
David said...
The new "jumbo" conforming loans have been a real bust. The government helped Fannie and Freddie (and FHA) along with temporarily increase their loan limits but forgot to ask the lenders how they'd implement the new program. They're new loans with their own set of risk and quite frankly lenders just aren't all that keen on taking on an unproven product right now. That's why rates are so much higher, as much as 1.50% higher, than conforming.
Try taking out two mortgages, one at $417,000 and the second for the balance to see if the numbers work for you. At present though, 6 5/8% is a pretty good number.
7-16-2008 @ 12:02AM
Shavonne said...
We are first time home buyers in San Antonio. We have perfect credit but not a lot of liquidity so we're looking to take out an FHA, 3% down, 30 year loan. We have talked to three people about this loan...two brokers, one banker.
Is the 1% origination fee charged by everyone? Also, two of the mortgage people said they could get us 6.5% and the one today said 6%, maybe 5.875%. Does this all sound right? We feel very vulnerable to misinformation and scams right now!
Reply
7-16-2008 @ 12:09AM
David said...
Hi Shavonne...first, origination fees are not charged by everyone but typically charged by mortgage brokers. Nothing wrong with that but that's how they make some of their money, Nthing wrong with profit but that's how they get paid.
When you get wildly different rate quotes, as you've gotten, it's simply a matter of a loan officer trying to get your loan in the door...loan officers get paid on commission and that means they don't bring home any bacon unless they close your deal.
Mortgage companies all price their loans on the very same index. That means it's impossible for one lender to be at 5.875% while everyone else is at 6.50%. Can't and doesn't happen without additional fees, points or orgination charges from a mortgage company.
Reply