For the past few years during the Great Recession, when getting a loan was a very difficult process, the mantra came to be: direct lenders (brand name retail banks) were the only way to get a deal closed. The reasoning was that because they were direct lenders, they could commit to funding their own money, where as mortgage brokers could not make that same commitment as they needed a third party’s commitment.
The market has now shifted and getting a mortgage is not impossibly hard. Purchase loans are very popular with lenders and they are competing for this business. And because of the low inventory of homes in the market at the present time, it is vitally important that buyers deal with lenders or brokers who can close in a timely manner without delays and look out for the best interest of the buyer.
So is it true that direct lenders will do a better job for buyers than mortgage brokers? I argue that is not necessarily the case. The person who will work for you to get the deal closed with the least amount of problem is the one who is best suited for the job at hand. It doesn’t matter if this person works for a retail bank or is a mortgage broker.
Let me use a real life scenario to put things into perspective. I am in the process of closing escrow for first time buyers. I recommended one of my favorite mortgage brokers with whom I’ve worked over several years and explained that he will work hard for them because of his relationship with me. These first time buyers chose to go with their bank (direct lender) because the loan officer promised to save them money and time because they had an established banking relationship. As this was their first home, they felt more secure working with their multi-national bank. There is nothing wrong with that reasoning, so they needed to feel comfortable.
The loan officer told them that his bank would be able to fund more easily and quickly because the underwriting is done in-house. This claim almost leads you to believe that the loan officer can have an impact on the outcome of the underwriting effort. Just like my mortgage broker friend has no ability to influence the underwriting efforts of the third party lenders he works with, this retail bank’s loan officer has no ability to influence the underwriting department. They belong to separate departments and are designed not to be able to influence each other.
We have removed all contingencies and are now one week behind schedule in getting the loan docs to escrow because the bank’s loan officer cannot explain to us why the file is stuck in underwriting and not getting signed off. Suddenly the ultra helpful loan officer is not picking up his phone or responding to emails in a timely manner. Both the buyers and the agent (me) are looking bad to the sellers and their agent. The buyers did everything they were supposed to do, but this Assistant Vice President of the bank cannot explain why no one at underwriting is releasing the file of one of their Platinum Customers whom they courted because of their ample assets and low risk. Like most transactions, the timing is very tight in our case. The delay of a week or more so far, has the real possibility of leaving my buyers homeless with a baby on the way and it is causing them tremendous stress. This stress that is obviously not good for an expecting mother.
This loan officer told my clients that he would save them more money because he does not charge a brokerage fee that the mortgage broker would charge. This is probably true, as a bank employee, he probably does not charge a brokerage fee. However, what he failed to mention was that he can only offer limited products from his own bank. So the competitive benefit of shopping against other smaller lenders who may offer better rates is not available to my clients. The rate they locked in was comparable to what my broker friend quoted them, so there was no real financial benefit.
But they chose him because of the convenience of the bank having access to their financial records and being able to push the process through quicker. Rather than closing quicker, we are a week behind because underwriting department is delaying the release of the file to their closing department. And we have no idea why (he is blaming the Federal Government shut down) underwriting is not signing off on a client who has a large down payment with zero debt. These are the perfect customers from a lender’s point of view, that is why they courted them so vigorously.
How much benefit did my clients get by walking into their retail bank to get funding for their new home? Financially no significant benefit was realized. But instead of getting their loan pushed through quicker as was intimated, it is taking much longer and caused my clients tremendous stress at the prospect of being made homeless before they get into their first dream home (how ironic), as well as being in breach of contract because we cannot close on time.
I cannot say that my mortgage broker friend would have made the process close in time. But what I can say with certainty is due to our years of working together, he would have called and contacted everyone he knew to make sure that my clients would not fall out of contract or cause them to become homeless. His relationship with me is important because he knows I will continue to refer him clients and vice versa.
What would have happened is he would have kept all parties in the loop and informed us with real answers rather than simply blaming the Government shut down as if anyone buys that explanation. He would have made the calls to the listing agent to explain what the delays were and given him and the sellers some assurances. He would have initiated calls to all involved parties since his company is the one causing the delay rather than making me and the buyers call him on a daily basis for an explanation, only to be faced with no responses for days. He would have called to assure my clients that they and the coming baby will not become homeless, that he would put them in a hotel if needed (rather than being forced to accept this possibility). Bottom line is, he would have proactively taken care of the clients and the agents better and not left them hanging and blaming the government and his own underwriting department.
People who have been in Real Estate (or any industry) for any extended amount of time know that the key to getting things done in this industry is all about relationships. It is about making sure that your actions or inactions do not make someone else’s lives more difficult. In my case, the lack of honest information and simply refusing to take charge of the situation is causing tremendous emotional stress and additional financial obligation to my clients. It’s not that the delay happened – sometimes they happen – but in the way and manner in which it is being handled, that is the problem. All types of promises were made in the beginning about taking extra good care of them because they are Platinum Clients, but when everything hit the fan, the loan broker was conspicuously absent from the scene and left everyone to wonder about the cause and when escrow would close. Causing more than a week of delay in closing without a rational explanation is not acceptable in the Real Estate business.
In the 12 years that I’ve been selling Real Estate, I have developed close working relationships with lenders, both direct and mortgage brokers, and various other service providers like painters, electricians, stagers, etc….. We help and support each other’s businesses grow, so we have vested interests in maintaining excellent customer care. My affiliate partners will bend over backwards not simply because they have a new client, but to preserve their relationship with me. Unless a client has their own special relationship with a service provider, it would typically be in their better interest to go with my referrals. So Home buyers and Home Sellers, save yourself the headaches and make use of the valuable relationships I have forged for your benefit. Saving money is good thing, but avoiding stress is something that is far more valuable and beneficial in the long run.
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