Loan Approval letters - Mortgage Broker vs. Funding Lender

HI Randy,

Good post.

Being able to walk down to the underwriter's office to get additional review is a big advantage.

Not only for the prospective buyer, but also for the sellers.

Bill MacBride

What? You mean  that Bob’s Mortgage and Hair Cutting Emporium is not a real company? This means I'll have to find someone else to process my buyers loan. Rats.

About 25 years ago, I learned that, if a mortgage company couldn't fund a loan the loan "approval" wasn't worth the paper it was written on.  As a listing agent, the recommendation is made that the buyer get a loan approval from a funding lender.  As a buyer's agent we have to show the buyers the difference.  It's not always easy.  If thy insist on going with a broker, then it's advised that they process a back up loan.  Of course, the the seller doesn't accept an offer financed through a broker, it's moot.  At this point cooperative lenders are losing partners too.  We have never had an offer accepted by a short sale lender or REO owner.  They know the difference.

And when the underwriter at the local lender turns down the loan that the loan officer walked down the hall and showed them, then what?  Mr. Funding Lender is out of options for Mr. and Mrs. Buyer.  A mortgage broker may be able to find another lender with different guidelines who will accept the loan.

I am a broker and banker and can only write in my own State.  Regardless of whether I place the loan with my own bank or broker it out, I can always talk to an Account Executive, my processor or someone in Underwriting on any loan scenario that is questionable (and there are no slam dunks anymore!)  It is up to the broker to decline a loan, not the Underwriter.  If a broker is issuing pre-approvals for borderline or worse buyers, it is not becaue they are a broker but because they are not doing their job correctly.

Are loan application fees customary there?  They aren't here.  Are escrow and title paid up front there?  They are not paid here until closing.  So, a buyer is only out the cost of a credit report to get a Conditional Loan Approval after going into contract on a property.  Once they get it, they order the appraisal and inspections.  Perhaps processes are different there.

Buyers really need to have their file underwriten upfront now especially if they are border line with money/credit and so on.

This is great information and Buyers should be aware of how this process works. Although laws and guidelines are differnet in California ....where I practice. The requirements of getting a loan through a qualify bank is the same.

Randy, I'm afraid you are sorely misguided. I am a Federally Chartered Bank able to write nationally and I have the ability to broker as well. Some of your comments are not only inaccurate, but downright misleading.

For one thing, most underwriting is stationed at an operation center far from the sales areas, intentionally. The days of Countrywide where the underwriter is just down the hall are pretty much gone, for a good reason.

When a deal is in question, it is the MLO's job to run it by the underwriter, whether the underwriter is down the hall or across the country or whether a working for a lender or a broker. It is the MLO's responsibility to draw out and address all potential pitfalls before issuing an approval.  

You are assuming that brokers do not have that option and that is completely misguided and misleading. Most wholesale lenders that brokers use have an area specifically for underwriting questions and scenarios, if an underwriter is unavailable. So the questionable deals always have an ear because the wholesale lenders understand deals that will not close cost precious resources.  

You are also assuming that a lender's MLO will automatically reach out to an underwriter where a broker will not so the implication is the lender MLO is more honorable or simply better at his job. The truth of the matter is it depends on the quality and integrity of the individual MLO and NOT where they are working.

I have seen many crap approvals come from the large lenders lately because their MLO's have been beaten to a pulp and have seen their compensation cut in half or less, so they just don't care anymore. Some will issue an approval to bagel, because the name of the game is now volume.

As for as some of fees you mention, I have never seen a broker charge an application fee, but I have seen many lenders, particularly the big banks charge it among other fees. Broker's fees are always paid at closing as opposed to lenders, who can get away with just about anything these days as a result of recent legislation.

It is your type of attitude that allowed the brokers to be legislated almost out of existence and the results are higher costs to the consumer with the big banks riding rough-shot over the industry since most of their competition has been eliminated. You WILL see even higher costs and higher proportional rates with declining service. The brokers kept the big banks honest.

Oh, by the way, you reference to a broker as Bob’s Mortgage and Hair Cutting Emporium, although you preferace with mentioning it is a fictitious name, it is downright insulting! Oh, and just as a reminder, I AM A LENDER.   

Randy every mortgage broker that I know sends a borderline deal to a lenders Rep who then discusses the applicant with his or her underwriter to obtain an underwriters opinion prior to issuing a pre-approval letter. Most every deal mortgage brokers get are borderline deals rather then slam dunk lay downs that anybody who was selling used cars last week could take an application and close a loan for. My clients are real people who need someone who actually knows the business to make purchasing a home possible for them. I respect every Loan Originator out there who has survived the attempts by the federal government and the big bankers to eradicate them from the market as competition. We are still here and if not you wouldn't have any other available options to consider Randy. 

First question, are you related to Tommy?  I'm a Bruin alum from 67-71.

Now, to business.  This discussion is very educational.  On my own listings, I have had many, many more problems with so-called "pre-approvals" that are from mortgage brokers than from direct lenders.  The mortgage brokers above say if depends on the integrity of the mortgage person.  As a listing agent I can't assess their integrity from a "pre-approval" letter presented with an offer.  There are thousands of mortgage folks in Silicon Valley and I know a hand full of them. 

I prefer dealing with direct lenders, but the big boys seem to be under tremendous regulatory pressures.

One question, if all conforming loans are packaged to satisfy FNMA and/or FHLMC underwriting guidelines, why is there any difference in approvals between direct lenders and mortgage brokers?

Your article was very helpful.  I've recently seen first hand what a difference there is between the two.

Randy - If I have any concerns over whether or not a particular borrowers circumstances will prevent them from getting to the closing table, I don't actually have to get up from my desk and walk down the hall to talk to an underwriter.  I just pick up the phone and call one of my tier one lending sources and speak with an underwriter about my concerns.  Although it may not be the underwriter that gets assigned to my borrowers file, they are a certified underwriter who will gladly address any concerns I may have and let me know what I need to do. 

Did exactly that a few days ago with a prospect who has some challenging circumstances.  It's because I have the ablity to do this that I can service my clients with just about any mortgage need they may have.  It's also the reason why so many others turn to a mortgage broker like me after some large, national, retail bank has totally screwed up their transaction.  It's too bad that you have never had the opportunity to work with a really great mortgage brokerage.

Randy

I've been on all sides of the fence.  Banker, mortgage banker, and for 10 years now a mortgage broker. I'm sure that I will come across bias, but I have to strongly agree with Ed # 5, Ray # 8 who is also a funding lender, and Jim # 8,and Donne # 12.

It all really boils down to professionalism and knowledge.

To paint a brush and make comments of your nature is one of the things that makes Realtors look like used car salesmen and shoddy attorneys.  That's like saying only use a Realtor who works under one of the Big-Box Brokerages vs. a small local real estate broker.

While I respect your opinion, you are so far off base.  Since you are in beautiful Hawaii, take a nice stroll down to the beach at some point, and really think about what you just wrote.

As the lenders above have mentioned, the big banks along with politicians and their lobbyist have done everything under their power to eradicate we small brokers.  As a NMLS approved lender, I have to endure substantial hurdles just to stay in business while the banks are exempt from many of the rules that I have to follow.

I have dealt and come across hundreds of unscrupulous Realtors in my 30 plus years experience, and for me to say that they are all alike would be a sincere injustice to your profession.

I still contend that size or power of direct lenders makes no difference to me.  As a Pro, I can run circles around them, beating their rates and terms any day of the week.

Lastly, I can get up everyday, look myself in the mirror, smile, and know that what I do helps people because I'm a knowledgeable Pro.  Thankfully, I am still in the position to pick and choose just who the Realtors are that I agree to work with and service their clients.

I wish you and all of your Realtor constituents all the best, and refuse to paint all with the same brush.

You should heed and do the same, but as an individual in this fine Country we live in, you have the right to do and say what you choose just like I do.

Let's clean up Both professions, and act like Pros and good citizens.

What say you?

Well, I work with a Mortgage Broker and have had less problems with him than with the local banks I have dealt with in the past year.

But, my mortgagae broker knows that if he screws up I am gone.

Randy - I agree with some of what you say, but disagree with others.  I agree that it is important for a mortgage broker to have it run through DU with the lender to make sure the loan approval is actually an approval.  However, I frequently find that those who work for the funding lender have less options than a broker and often prefer the mortgage broker.

Randy, A well written blog post with good illustrations.  It sounds like you have good local lenders in your area.  

The real issue here is whether or not the MLO knows the underwriting guidelines well enough to properly pre-qualify the buyer.  

Then it sounds like what you are saying is that mortgage brokers don't do their jobs well, to the client's detriment, IN HAWAII.  You would have been well served to make that specific distinction more clearly in your post.  I doubt you have the first hand knowledge to claim that all mortgage brokers in all 50 states should be avoided.  As you stated, processes are different there.  And, as some of the agents responded, in their area, brokers are the better option.