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Mortgage Banker vs Mortgage Broker -- What is the difference????

There has been a lot of talk recently about the difference between a mortgage banker and a mortgage broker. This talk is not just from realtors and consumers, but those in the mortgage industry. And if it seems a little confusing at times to the actual loan officer, just imagine what it might seem like to the average realtor or even the consumer.There are 2 main differences with a 3rd that will be explained later on within this post.

A Mortgage broker acts as an intermediary who sources mortgage loans on behalf of individuals or businesses. Traditionally, banks and other lending institutions have distributed their own products. (from Wikipedia)

A mortgage banker is one who originates, sells, and services mortgages in the secondary mortgage market. Using their own funds to close a loan. (from www.investorwords.com)

The diagram below represents a broker or a banker. It says if the borrower goes to a broker, the broker sends it to a wholesale lender before you can get your house. On the other hand, if you go to the banker, they use their own money. There will be some differences in what kinds of bankers there are that will be explained below.

In the diagram above, you have a borrower that can either go to a banker or a broker to buy or refinance their home. Here is part of the problem when someone might talk about a banker. Many of you think of a local bank who has someone that sits at the bank and can help you with your financing needs, hence they can be called a banker. They have checking & savings accounts, CD's, and other banking specialties.These are your local banks, large or small. But many of these banks don't have loan officers that know many of the programs out there or are not usually creative in saving you money. Some larger known banks would be Wachovia, Chase Manhattan, Commerce Bank (on the east coast) and Wells Fargo. These bankers are large, use their own money, and have experienced loan officers just as brokers. And it is true that brokers account for most of the mortgages that are originated. One main reason though is because it's cheaper to operate as a broker, but this doesn't necessarily mean that they are cheaper or better. I'll explain why later.

They type of mortgage banker that I am talking about is one who uses their own money but who can sell to other lenders acting as a broker. This can be also known as a correspondent lender. What this banker can do is use their own money from a warehouse line and hold onto your mortgage for a month until they sell it on the secondary market. You have already been locked in with this lender who can then get a bulk price for volume which allows them to still give you very competitive pricing. And these same bankers have all the programs at their finger tips just as a broker does.

The other issue is that your traditional bankers mentioned above, for the most part, can act as a broker on certain types of deals in order to have access to all types of "less than perfect" credit loans. The reason being is that they don't want to service this type of mortgage because of it's risk, so they will act as a broker.And some actually do service these credit risk loans. Also, those that say a true banker can't give you the best deal, is slightly misleading the general public. Their pricing is just as competitive as the broker and can sometimes can be better depending on their volume. This is called units at which time, the more they do, the more they can drive down pricing for their clients.

Conclusion : In my opinion, the problem that I see is that brokers will make it sound like they are cheaper in both rate and cost because they have hundred's of lenders (wholesalers) that they can sell to.They will sometimes swear up and down about this. And you will have bankers that will swear that you aren't getting the best rate because brokers are a middle man. The funny thing is that the money comes from the same place when all said and done. It's priced through Wall Street in regards to pools of money.

So, what's all the hoopla? Each is vying for your business. Meaning that these are sales tactics at times. If you read this whole thing over and over, what is missed the most? SERVICE - TRUST - KNOWLEDGE - COMMUNICATION This is what you should be looking for and not a bunch of broken promises.

The honest difference? Besides what was mentioned in the last sentence? Brokers don't underwrite their own loans which means that they can't close their own loans. Now, there will be an argument that brokers can get loans done just as quickly because of their relationships with certain companies. Yes, this can be true at times, but is still a negative in my book. I am a banker that sells our loans on the secondary market which does not affect you, the consumer. So I have many lenders that I can sell to just as a broker. Best of both worlds.

Not only do we underwrite our own loans, but we also close them in-house, using are own money. What does this mean? I have more control. I can usually get things done quicker than the average broker because I have someone in-house that underwrites and close these loans. And as stated, I have more control because of what I can approve in-house than a broker relying on an underwriter that is not part of their company. But again, this is my opinion of almost 15 years in this industry.

The people that I would be most afraid of are those that advertise like this. (may it be in writing, over the phone, on the internet, or on their web site/profile page)

LOWEST RATES...EASIEST TERMS 100% loans also available. Close in 7 days or less. N0 out of pocket expense. Pre-Approval guaranteed in 24 HOURS. CALL NOW!!!

So, what is wrong with the above statement? Anyone that states lowest rates and other phrases such as ZERO expenses/costs and or the word guarantee. These are sales pitches. Again, this is what you want from your lender. SERVICE - TRUST - KNOWLEDGE - COMMUNICATION

One last thing that you want to make sure your lender can handle is conventional, FHA, VA, and subprime types of loans. You don't want to be on the short end of the stick, depriving you of every program out there, depending on your financing needs.

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Posted by Jeff Belonger-The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans on 07/23/2007 06:22 PM

Comments (34)

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34 Comments on Mortgage Banker vs Mortgage Broker -- What is the difference????

JUL

2007

Great Blog and explanation Jeff, I left Wells Fargo because we were strictly a Mortgage Bank and Here at Benchmark Mortgage we are a Banker and we can Broker if we choose so we have the best of both worlds. If we find a product or rate better then we can broker to over 250 approved lender. Our over 500 in house products are great but sometime you have to think out of the box and Benchmark Mortgage allows us to do just that.

Whoppee, great explanation. I love to work with Mortage Bankers that can unwrite their own loans. Or hold them until they can resell on the secondary market.

Well written and very timely. I think the nature of the mortgage industry, as well as the current cycle, are going to start producing a whole lot talk about why "one versus the other." Your blog spells it out fantastically.

Leo.... I didn't know you left Wells Fargo... When was this? In any case, thanks for your feedback and input on your thoughts.

Missy....... now, don't get to excited... ;o)

Joe..... Yes, I am starting to see this all over the internet. I am getting tired of both sides, telling everyone why they are better and that the other is not such a great deal. But each one of these blogs forgets the basics essentials....SERVICE - TRUST - KNOWLEDGE - COMMUNICATION

Thanks for your feedback and for the polite compliments.

Jeff,

Great points, showing the difference between broker and banker, I see the countrywide commercial on T.V. all of the time, stating that they can do what know one else can and a No closing cost loan, funny thing is I talk to so many people and they have said that when they called countrywide, they didn't qualify for the No cost loan, seems like bait and switch to me, or maybe it's in the very tiny print at the bottom of the commercial that goes by in two seconds. I like the point that you brought up, about how consumers should really think before assuming all of these guy's can really do what they promise... I hope consumers read this one..

Tom Weiss

Jeff, This is a flagged fiver post. Very informative for the consumers and realtors. I learned so much and now can pass my knowledge to my clients who are looking for a lender as well. Thank you.

Jeff - Great Post. I like he way that you graphed it out. I remembered you telling me to post how my company works. So, here is a link.http://activerain.com/blogsview/145438/Wholesale-and-Retail-Lender

I think it is great to be able to walk down the hall and talk to my Underwriter face to face about my files. I couldn't agree with you more that the money all comes from the same place. We have been known to fund up to 30 Million Dollars in residential loans in a month. With this volume, we can be very competitive.

Jeff,

Your post is a five for being informative and very helpful. The more I know about what you guys do, the better service I can give my clients.

Fran

Great explanation to a commonly asked question in our industry! I also tell borrower the advantage of working with both types of mortgage companies. It all boils down to the mortgage consultant, company aside, who works with the borrowers to put them into the right mortgage program. Kudos to you for being a professional and explaining the different mortgage options!

Great post Jeff...I learned a lot!

Jeff, you are so right... it all comes down to the person on the other side of the phone helping you make the right loan decision for you and your family... caring enough to ask the right questions and select the right product for you. Excellent post!!!

Jeff - You must have spent a lot of time writing this very compehensive post? Nice job explaining the difference. You are a writing machine right now!

I agree with Tony, you are a writing machine. When is your book coming out? JK

I was thinking about your statement that everything is an advertisement. I think you are right on. I have been paying more attention to my surroundings lately, and have noticed that everything, is an advertisement. I mean EVERYTHING!! I am still getting in the mail NegAm postcards. Are you kidding me? .5% start rate, Awesome! Maybe I will call them....NOT. I am fired up about the status of this business, and can't believe that people are still spending thousands of $$'s to pay for advertising of these products that people don't truly understand. It kills me. I was thinking about posting the flyer I got on here, and picking it apart. Blurring out the contact information of course. What do you think about that idea Jeff?

JUL

2007

Jeff - great post, thanks for the clarification and sharing what the differences are. Many borrowers will benefit from this post! I did! B-)

Good post. I find myself having to explain the difference myself to consumers. I, too, am a mortgage banker who has in-house underwriting and can broker out if I need to. Like you said, best of both worlds.

Tom W. ...... see that commercial? lol It was on at least 5 times within 3 hours just the other day. And you hit the nail on the head. That commerical states that nobody can do what they can do. That is strictly advertising and so not true. Especially when I could say that I have done some things that Countrywide couldn't do before.

Thanks for your input and for the comments.

Mana.... my pleasure. I am glad that you could understand it. It's sometimes hard to explain certain things, especially when we know what we are talking about, but to put it in laymans terms can be difficult at times. Thanks again.

Shaun....... I agree of the many points that you have mentioned. And I have read your previous post before. Again, you make some great points. Thanks for sharing these and for the compliment.

Fran..... I totally agree and it's good to know that a post like this can help others. Thanks for stopping by and for the compliment.

Leah.... thank you very much. I appreciate your feedback. And we both agree that it comes down to the individual that the consumer is dealing with, helping them with the best program.

Joan.... thank you for those kind words and for stopping by.

Irina..... you hit the nail on the head. That particular loan officer that asks the right questions, asking the clients goals. This is one thing that lacks many times when a loan officer speaks to their client. Thanks for pointing this our.

Tony...... unfortunately yes, it did take some time to write this. A little longer than expected. Especially for the fact that I was trying to make this easy to understand by the average consumer. Thanks for those kind words.

Jonathan...... my book? Don't give me any ideas... lol Seriously, thanks for those polite comments.

In regards to your comment about advertising, we totally agree on this. Especially those that make it sound like it's an awesome deal, but we know differently. That if explained to the client appropriately, that many of these consumers might have not taken that particular program. Same as these no cost mortgage programs advertise on TV. They are just basically a ploy to get people to call in. We know that, because we are in the business. But what about the average consumer? They seek our professional advice. But do they get it all the time? hhhhhmmmm... I think not.

Brad...... I hope they truly do get an idea from this post. Thanks for your feedback and comment.

Pete....... just getting the word out there is all that we can do. A lot of this is our own opinions, depending on how we look at things. Keeping an open mind and trying to get this type of message across to the consumer is the hardest thing to do. And not making it sound one-sided as so many do. And thanks for the compliment.

Great post Jeff. I didn't know you were a "banker".

Hey Jeff, good clarification

Jeff - Thanks so much for making this distinction. It always tickles me when I meet someone wearing flip flops and cutoffs with a two day growth on his face who introduces himself with, Hi, I'm a mortgage banker". I don't think so. It just doesn't add up. Two other titles that can also be confusing to home buyers here in Orange County is lender and originator. Thanks for an enlightening post.

Melissa...... either did I... lol Seriously, I am a banker that can broker loans out. And underwriting them, in my opinion, can hold an advantage over so many. Especially on the FHA loans. thanks

John.,.... thanks John and for stopping by.

Marlene.... hey Brian Brady, did you hear this? You can wear your flip flops anymore.... lol Yes, that part cracks me up, especially when on the street. But I couldn't see anyone on th street do this. Now, you would be shocked on how some of these loan officers and what they wear while at the office. Thanks for the compliments.

JUL

2007

Thank you very much for sharing, another post with great information!

Shane.... thanks for stopping by and for the compliment.

Jeff-Thank you, thank you. Very informative. How about explaining (for dummies like me) what the difference is between a loan officer, lender, mortgage consultant, loan originator and whatever other terms are out there. Everyone seems to have a different title! I just dont know if I am dealing with someone on the lower end of the totem pole or someone that actually has some power.

David..... that could be a very long post. Overall, we are all the same respectively with the titles that you just mentioned. The only other one out there is an actual designation. CMPS Certified Mortgage Planning Specialist.

In any case, thanks for the polite compliments.

JUL

2007

Excellent Post... Thank you.

JUL

2007

Hi Jeff,

This was a very detailed yet easy to understand explanation. I too am a mortgage banker and feel I have the best of both worlds. There is nothing like going to my closings with checks and funding the deals at the table!! I think in the midst of the B/C collapse, integrity and trust are so essential to be successful in this business. Thanks!

Erin

AUG

2007

Jeff: Not to get into a pissing battle with you again and I do think that this post is a bit more even handed than the other one that I am referring to, but I still disagree with many of the points that you make here.

After having worked for three large mortgage banking companies before, I would never go back to working for one. What you said about being able to broker loans in addition to having your own in house products does make sense, as long as the company will allow you to price them competitively and to freely offer them to your customer. With the three that I've worked at and others that I know about, this isn't always the case.

As far as the other advantages of working for a mortgage banking company, in my experience, they really aren't advantages most of the time. The investors that I sell my loans to are very responsive to us brokers. They have to be! If they are not, I'll take my business elsewhere. If you work for a mortgage banking company and the company, for whatever reason, isn't responsive to your needs, you're only choice is to put up with it or to quit.

The last "problem" that I have with this post is that it seems to leave people with the impression that mortgage banking companies have a monopoly on trustworthy, experienced, etc. loan officers and this isn't the case. Many high quality loan officers work for many different kinds of companies. Be it broker, banker or mortgage banker, the public and the real estate community needs to know this.

Bob Mitchell

ValueList Real Estate Services, Inc.

Jeff---as a fellow mortgage banker, you hit the nail on the head.

The main difference is control. We control the loan process and if something goes awry, we can move it to a different investor without noticable time delay. We know our investors, their products, guidelines, and our in-house underwriters.

Although there are many talented, trustworthy and experienced brokers, I don't know of many successful real estate agents that rely on brokers for their referral business.

It's not that the broker is untrustworthy, but many of the Account Executives at their broker banks are. They will say anything to get you to send them a loan and then not stand behind it at the end.

Most successful agents I deal with rely first on a bank like Countrywide or Wells Fargo or a full service mortgage banker with many investor choices, like you and I, and the ability to broker if absolutely necessary.

Everytime I have to broker a loan, and that is rare, I make a call to the borrower, the seller's agent, and the listing agent to advise them to alter their expectations of the process.

AUG

2007

Wayne & Linda..... thanks for stopping by.

Erin.... I agree about trust and integrity. Thanks for the polite compliments.

Bob..... pissing match or not, you have your own opinion and that is fine. I honestly think that you just like to argue the other side. Because you still haven't proven anything to me about the FHA vs your other programs, which are starting to drop like flies. But not FHA....

All in all, this post was not telling anyone that bankers are more trust worthy. It's how you are reading it. There are dishonest people on both sides of the fence. But, I would be able to say that there are more dishonest people on the brokers side. There are too many broker shops that don't care how they have to get and or do business. And think about it, it makes sense, because there is less to lose on their part.

We could be here all day. I do appreciate your feedback, but you will look at it from another view point. When you argue FHA with me and keep bringing 80/20's with 680 credit scores into your argument, sorry, but you have proven to me that we aren't in the same room when having these debates. And I only respect those that will admit that the FNMA programs aren't what they use to be, that they are dropping, that we will be back to basic lending as it was in the mid 90's. This is a fact and if you can't agree to this, there is no sense in going further. Sorry, it's just how I feel.

Aaron.... I agree, control has a lot to do with it. People as Bob keep telling me that they have worked for small and large and don't agree with my statements. That's fine, I can understand that. If I had to make a statement on that, I would have to say that it's called being loss and not secure.

But I will disagree on your last statement..... Most successful agents I deal with rely first on a bank like Countrywide or Wells Fargo or a full service mortgage banker with many investor choices, like you and I, and the ability to broker if absolutely necessary. I know many successful people that are brokers, so Bob does have a point. It comes down to the loan officer. I have been successful at doing either. My main focus on this as we have mentioned is having control and underwriting control. And I am not talking about those easy FNMA deals.... I am specifically talking about the FHA loans. People will start to realize this statement in the next 1 to 2 months, because other programs are disappearing very quickly. Thanks for your feedback and input.

Jeff, you give a great breakdown of the difference. This is a fair outlook on the difference as well. I too work for the lender, and we can be competative on price, however, like you, I would say that our strong point is being able to originate, process, underwrite, approve, close, and fund all from my branch. In my opinion the real difference, other than what I have just said, is all on a personal level, and in the end boils down to trust. Great Post!

Jeff you forgot to add that a mortgage broker will add about 3 days to a closing because it misn't their money and they have no control over the underwriters or the processors putting the funding packet together!

SEP

2007

Mortgage Brokers need to disclose their commission to the borrower and Bankers do not. Bankers promote honesty and integrety. Brokers are legislated to be that way. Most Bankers would not be bankers if they had to discose all their fees. End of Story.

SEP

2007

Hey Jeff,

Great post on an important subject!

My only argument about a mortgage banker vs. broker. I was a mortgage banker for 2 different companies that sold to the secondary market. Both times they closed down because these loans were no longer being purchased.

Moving to a broker gave me more peace of mind knowing that even if a lender were to fall, I would still be employed and can take my loan elsewhere right away.

To each his own, I'm sure, but I hesitated to join another mortgage banker because of my experience. I thought of going directly to a bank, but their commission structure was weak and they're pretty much limited to their products.

Talk to you soon,

Pete

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