Banker, Broker, or Mortgage Banker???

There have been a substantial amount of changes in the mortgage industry over the past year.  With the changes it is important to understand the differences among mortgage sources and how those differences impact your real estate transaction.  It is my understanding that many real estate professionals do not understand the difference between lenders and I hope to outline the differences here.  There are three main types of mortgage professionals:  bankers, brokers, and mortgage bankers.  I will discuss each briefly to provide a generalized overview of each sector. 

Most consumers have established banking relationships and will shop for a mortgage at their local banking branch.  Banks provide a lot of security for the borrower, but are subject to strict regulation by the Federal Government since they lend their own capital.  The lending process is controled by their in house processing and underwriting which provides good overall turn times and control over the loan file flow.  The disadvantage of this route is the lack of loan options and non-competitive rates due to their regulation and conservative approach.  Please note that there are some smaller local banks that offer portfolio lending products for mortgages that do not fit into the conventional box (construction loans, short term loans, house boat financing, etc). 

A second option that has gained a lot of popularity over the past several years is the Mortgage Broker.  Brokers provide a high level of flexibility in mortgage products, provide great product knowledge and have the ability to get the borrower the best rate.  Many borrowers use mortgage brokers to find niche products and shop rates for them.  Brokers are a great resource in a relatively new area with little regulation.  A mortgage broker puts together a client's file and then sends the file to the direct lender.  This lender could be two blocks away or 2000 miles away.  The downside of this system is that the broker gives away control of the file once it is submitted to the lender.  Unlike a bank, the mortgage broker does not necessarily have a net worth.  Which means in the event of legal dispute from either the borrower or the direct lender there is little opportunity for recourse.

The third option is one that is growing and provides the benefits of both a bank and a broker.  This option is a Mortgage Banker who has the ability to lend their own money and is also regulated by the Federal Government.  A mortgage banker must have a net worth of at least $2 million to establish their lending network.  This format brings the security and control of a banking environment and combines it with the flexibility and rate shopping ability of a mortgage broker.  Some of these mortgage bankers are also portfolio lenders that offer financing similar to the small banks mentioned above.

As our market becomes more sensitive to rates, product changes, and turn times it is of great importantance to understand each mortgage professional and the avenues in which they conduct business.  This knowledge allows us to better educate our clients and helps real estate professional to understanding the pros and cons of working each choice.