What is difference between Mortgage Brokers and Banks and Credit Unions mortgage lending divisions?
A common misperception is that Mortgage Brokers are a “middleman” and thus have to charge higher rates and fees. In fact, the opposite is true, since Banks and Credit Unions don’t lend their own money to clients, but rely on the same sources that the Mortgage Brokers do.
It is important to understand that the Mortgage Broker or Bank mortgage divisions, do not typically lend their own money. This means that whether a borrower chooses a Bank, Credit Union or Mortgage lender/broker each is technically in the middle between the seller of money and the buyer of money.
The seller of money is usually a government backed mortgage security or another mortgage security with quasi governmental guarantee. All mortgage loans typically fall within the following types:
1) Veterans Administration (For VA loans given to Veterans) )
2) FHA loans (For typically first time home buyer’s or low income borrowers
3) Rural Development loans through the United States Dairy Association (USDA) – For home buyers in designated rural areas
All of the above are guaranteed by the VA and are typically provided through GNMA, (Government National Mortgage Association) and sold as Mortgage Backed Securities.
4) Conventional Loans offered by Fannie Mae or Freddie Mac – Mortgage backed security with the implicit guarantee of the United States of America
So, the bottom line with either a Mortgage Broker or Bank or Credit Union, most all loans become available through one of the “lenders” shown above. These lenders do not make loans directly to consumers, so consumers have to choose between Mortgage Brokers and Banks and Credit Unions.Mortgage Brokers have unique characteristics that provide benefits to the consumer as shown below.
1) Mortgage Brokers work through the “wholesale lending” division of either National Banks or large mortgage companies. The National Banks or large mortgage companies compete for the various mortgages by offering their best interest rates to the Mortgage companies. The mortgage Broker, simply compares the rates and fees charged by the lenders and finds the best combination of rates and fees for each specific borrower.
2) The mortgage broker has the option of comparing over a number of different lenders and is not forced to just take the daily rate sheet that the banks must do. This is a material benefit of using a Mortgage Broker.
3) The Mortgage Broker also can see which mortgage lenders are providing excellent client service both to process the loan request and after the loan closing. This is due to the mortgage broker wanting to make the process as efficient for the client as well as the mortgage banker/broker itself.
4) A Mortgage Broker is driven to provide the best client service and the best rates and fees since the Mortgage Broker would like to have the mortgage client refer their mortgage firm to the clients friends and family.
5) The Mortgage Broker also can work with the lenders that have the best fit for the clients specific situation and not have to fit the client to the Banks rigid guidelines. This can make the ultimate difference of whether a loan can be approved and closed.
6) Mortgage Brokers are some of the most experienced loan experts in the industry due to the requirements to obtain the license to provide mortgage loans and provide excellent service to the clients. This includes many hours of training to obtain their license and annual continuing education to maintain their license. Mortgage Brokers are constantly updating their own education to stay current on all the latest mortgage loan products and programs.
7) Mortgage Brokers must undergo a vigirous back ground check to look for felonies and credit issues in order to be approved for their Mortgage Loan Officer license.
8) Mortgage Brokers typically specialize in just First mortgage lending for the purchase of a home and the refinance of an existing mortgage on a home.
9) Banks and Credit Unions can sometimes have internal underwriting overlays requirements that cause the loan file to be declined. Examples of this would be arbitrary minimum credit scores or tradelines or restriction on open collections or late payments. This shouldn’t be the case with the mortgage broker, since they can research which lending institution will provide the best fit for the client’s particular credit and income profile. Additonally, if a Mortgage Broker reaches an impasse with a mortgage lender, then the broker can work with additional lenders to see if the loan can be approved by any of the other lender choices that the Mortgage Broker has. Banks typically don’t offer this service and once the loan is denied it stays denied.
10) Mortgage Brokers can have extended hours both into the evening, federal holidays, and weekends during which times banks are closed. This facilitates much better communication between the clients and the lenders.
11) Mortgage Brokers typically do not have the overhead costs (Branch Network, Corporate staff) that banks do, or the requirement to return a certain percentage to Shareholders. Thus the banks have a higher current cost structure and legacy cost structure that most Mortgage Bankers/Brokers simply don’t share. This allows the mortgage community to pass those savings onto clients in lower rates and fees.
The bottom line is that the National Banks and Large Mortgage Companies are driven to provide the best combination of rates, fees and service to the Mortgage Broker community or the Mortgage Broker will simply change to the Company providing the best overall rates, fees and service for it’s clients.
AIM Financial is constantly striving to provide the best rates, fees and service, while maximizing the potential for the successful approval of each clients loan.
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