Mortgage Broker vs. Bank Lender
There are pros and cons on both sides when deciding on working with a mortgage broker vs. a bank lender for a home loan. According to Bankrate.com, "the majority of people find that better deal with mortgage brokers. About 65 percent of home loans are originated through brokers". In my opinion, freedom to choose is the best reason to work with a reliable mortgage broker vs. going with a bank lender.
Here are some comparisons to understand the background of fundamental differences between getting a home loan through a mortgage broker vs. using a bank retail lender.
Marketing - Banks build off existing relationships with customers and the power of their name along with retail presence. Brokers are more like the self-employed building their business through relationships in the real estate community and with past clients through referrals. They have to continue to satisfy clients because their future business is tied to their personal name.
Accountability - The management structure of a bank can offer more accountability for the agent's performance, because you can go to a manager and complain. If the broker provides poor service, the Sonoma County borrower's recourse would be to file a complaint with the California Department of Real Estate and fire their broker.
Licensing - Bank loan agents are not required to have any licensing, as they operate under the corporate license of the bank. Loan originators in brokerages in Sonoma County are required to have a California DRE sales license. Many broker loan agents have the higher broker's level of licensing.
Compensation - Bank loan agents receive a modest salary and benefits, and a commission on each loan from their employer. The bank receives the YSP from the investor. Brokers are paid through either loan origination points, YSP from the investor, or a combination of both.
YSP -Yield Spread Premium (which is the income or cost to the broker or bank, paid by the investor at each rate) is not required to be disclosed by banks. So you really don't know how much they are making on the loan. Brokers must, by law, disclose their estimated and final YSP to borrower.
Pricing - Retail banks are often not the best on the rate pricing. They will commonly use their higher rates (hence higher income) to pay some of the buyer's closing costs. Brokers are sifting through competing daily rates from multiple investors to get the best rate for the client. Brokers have lower overhead and no shareholders to satisfy in their pricing model.
Service - At a bank often service is restricted to the confines of bank hours. Service is limited to the reputation of the specific loan officer. Brokers build their business on relationships and loan successes so they work hard to provide the best service.
Underwriting - Some of the smaller banks will be underwriting by their own guidelines and may be more flexible and more willing to listen to a borrower's "story". The larger banks who sell their loans have the issues of not having complete control over underwriting decisions since they are trying to anticipate any details that their loan buyers (investors) will cite to refuse to buy the loan. Brokers have the freedom to choose a lender to whom they will send the loan. This choice is based not only on pricing, but on how sensible and quick the lender's underwriting department is. In both origination channels, the largest bank lenders often have the stickiest underwriting.
Turn times - In Sonoma County, the process seems to be slower and harder to close quickly with bank lenders. Because brokers can choose among many lenders, they are looking for the best turntimes and try to stay clear of the slow responders.
If I were in a situation to finance a home loan, I would shop both a broker and a bank and compare the rates, fees and service. I would expect a Good Faith Estimate from both for the same day's rates to make sure I am comparing apples to apples. But rate and fees are not the whole picture. Support and service by a trustworthy profession through the complex process is very important.
I have often considered working for a lending bank especially when I have a slow month or brokers again come under attack from the large retail lending institutions. I spent a year at First Republic Bank in their commercial division in 2006. As a result, two glaring concepts keep me being a mortgage broker despite the challenges.
The first concept is the question "who is the agent working for?" A bank loan agent is working for the bank and will offer the products the bank offers at the rate and profit margin dictated by the bank. The bank is a corporate entity that is working for the stockholders. So ultimately, the client is a means to satisfy the stockholders' demands for higher return.
In contrast, a broker is working for the client using the offerings of multiple lenders (and the service the broker provides) as the product he or she sells.
The second concept that keeps my in brokering is freedom. Freedom is paramount to my personal values. Working as a broker gives me the freedom to weigh the options available across a broad range of offerings and fit my client to that which best serves them and their personal financial goals.
I'd like to hear your experience comparing service and products of these 2 channels of loan origination. Please let me know!
For up-to-the-minute rates, go to www.SonomaCountyHomeLoans.com.
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