As published in 6 Southern California regional news papers.
By Brent C. Bruce
The recent real estate and mortgage recession has been front and center in nearly all of our lives. Many of us, our friends and our neighbors have fallen behind on our mortgage payments and found our houses “upside down” with loan balances much higher than our home’s value. All too often this has resulted in the pains of foreclosure.
This mess that we now face begs the question as to how this all happened, and in many cases the finger is pointed to the mortgage industry and whether it was the fault of the mortgage banks or the mortgage brokers. I thought this would be a good time to shed some light on the differences and similarities between the two.
The fact of the matter is that they are not very different. Below I will describe the some of the advantages and disadvantages to both. I will also explain the mystery of how each of them makes their profit.
- Broker – The advantage of the mortgage broker is service. The mortgage broker has the ability to shop for the best rates, fees and service levels of all of the banks that they work with. If one bank is taking two months to complete a loan, a broker can simply find another bank. Essentially they do the shopping for you. Mortgage brokers do not have the big bank name behind them, so they must have outstanding personal service to compensate.
- Banker – The advantage of the mortgage banker is control. The mortgage banker works directly with all of the parties involved in making loan decisions. They also do not work with any other banks. This gives them a very deep knowledge of their specific bank’s guidelines, processes and procedures.
- Broker – Working with multiple banks can lead to a lack of deep understanding of the processes and procedures of each bank. The mortgage broker usually does not have as much control with the banks since they are not employees.
- Banker – When working with a mortgage banker, you have only one bank to deal with. They do not shop the service levels, pricing and fees of competitors so you have to do this yourself if you would like to compare.
- Broker – The mortgage broker can be paid three ways. They can be paid by you as their client, by the bank as their agent or by both. You pay them through your loan fees such as origination points, processing fees and administrative fees. The bank pays them through what is called Yield Spread Premium or “YSP”. The higher the interest rate is, the more the mortgage broker is paid. For instance, they may be paid 1% of the loan amount for a 5% interest rate and 2% of the loan amount for a 6% interest rate. In most cases they are paid by both. This keeps the interest rate competitive and your loan fees low. This is to your benefit.
- Banker – The mortgage banker is compensated in a similar three ways. They can be paid by you through loan fees, by the loan buyer, who becomes the investor, or by both. (The investor is someone who buys mortgage loans in bulk and sells them on the bond market. You may be surprised to know that in nearly all cases the bank that gives you a loan will only have the loan for a matter of days before they sell it to an investor.) Again, it is most common for the mortgage banker to make their compensation from both the client, through fees, and the investor.
The key to getting a great mortgage is not whether you work with a mortgage banker or a mortgage broker, it is that you work with an ethical experienced mortgage professional. You must choose someone who has your best interests in mind, and who truly knows their business. An ethical mortgage professional will offer a fair interest rate with fair fees and provide excellent customer service. They will educate you on the loan process, be there to answer your questions and work hard to complete your home loan as quickly possible.
While integrity can be a company policy, it can only be a personal commitment.
These are the characteristics you should look for and demand when shopping for a home loan and they are available from both mortgage bankers and mortgage brokers.
When you are ready to finance a home, ask around. Talk to your friends and family and work with someone who has earned the recommendation of someone you trust.
Brent C. Bruce
Allied Home Mortgage Capital Corp.
8480 Red Oak Street
Rancho Cucamonga, CA 91730
Phone (909) 463-4750
Email – firstname.lastname@example.org
Website – email@example.com