How to choose a Loan Officer (Part 1 of 2)

By
Mortgage and Lending with AmeriFirst Financial Inc, San Diego, CA NMLS 259027
https://activerain.com/droplet/4Z2g

How to choose a Loan Officer? Whether you are a Borrower, Real Estate Agent, or Financial Professional, it is only a matter of time before you are tasked with the decision of How to choose a Loan Officer.

Note: click here for Part 2 of How to choose a Loan Officer

In this 2 part article, a detailed yet objective analysis will uncover the facts to enable you to make the best selection for your personal (or referral) needs. The first step is to understand the differences between the top 3 types of "Mortgage Company Platforms" which are summarized below.

(It bears noting that the Author of this 2 part article has personally worked in each of the 3 Mortgage Company Platforms, which allows a "first person" account of the pros & cons of each)

How to choose a Loan Officer, www.ApprovingSD.com

In the chart above, the 3 Mortgage Company Platforms are identified, which are: Wholesale Broker, Bank/Credit Union, and Direct Lender. Beneath each title, a color-coded list of pros & cons are provided (black = pros, red = cons).

How to choose a Loan Officer, www.ApprovingSD.com

Option 1: Wholesale Mortgage Broker

The most simplistic definition of a Wholesale Broker is a "middle man" (or "middle woman") who works to:

  • Attract Borrowers who are seeking a mortgage loan (for the purpose of purchasing a home or refinancing an existing mortgage)
  • Analyze the particular financial profile and goals of these Borrowers
  • Identify a Lender to provide a mortgage for these Borrowers

Pros:

  • A Wholesale Mortgage Broker has the ability to "shop around" on behalf of the Borrower due to the fact that the Wholesale Mortgage Broker has many different Lenders to select from. The benefits of shopping around are to improve the likelihood of securing the lowest interest rates, the lowest closing costs, and/or specific approval niches aimed at allowing Borrower's with unique financial profiles to obtain a mortgage.
  • More Lender options = more approvals than if only one set of Bank underwriting & approval guidelines were available
  • The Loan Officer's who assist you must be licensed.  Believe it or not, not all Loan Officers are licensed! This appalling point is worth restating: despite the fact that very similar products and services are performed by Loan Officers in all 3 platforms, not all of them have to be licensed!  In California for example, a Loan Officer working for a Wholesale Mortgage Broker must have 2 different licenses:
    1. California Bureau Of Real Estate (CalBRE) - To quickly determine if your Loan Officer has a CalBRE License, click here (this link will also let you know if your Loan Officer has any violations and/or suspensions of their license).
    2. Nationwide Mortgage Licensing System (NMLS) - To quickly determine if your Loan Officer has an NMLS License, click here. It bears noting that all NMLS Licensees must list their NMLS License Number on all of their outbound marketing materials (including business cards, email signature lines, fliers, etc.). That said, it is very easy to identify which Loan Officers are NMLS Licensed, and which ones are not.

Cons:

  • To understand the first drawback of using a Mortgage Mortgage Broker, you must first understand the 4 distinct "milestones" within the process of originating a mortgage loan:
    1. Processing - Arranging all initial Borrower & property documentation & disclosures in preparation to submit the loan file to an Underwriter (who makes the final approval decision).
    2. Underwriting - Once a complete loan package is received, the Underwriter can make a decision whether or not to approve the loan.
    3. Document Preparation - Once the approval is granted, Loan Documents (a.k.a. "Loan Docs") are prepared for the Borrower(s) to sign in the presence of a Notary Public.
    4. Funding - The final step in the loan process where the Lender actually lets go of the money (funds the loan). Typically the day after the loan funds, the transaction is completed (once all relevant documents are "Recorded" with the local County Recorder's office).
  • Now that the 4 above milestones have been elaborated, the first "con" to associate with the Wholesale Mortgage Broker is the fact that only Phase 1 (Processing) is performed by the Wholesale Mortgage Broker Company. The pivotal final 3 Phases (Underwriting, Document Preparation, and Funding) are handled by the actual Lender. From a service perspective, this lack of control often proves frustrating for many parties:
  1. Borrowers - Typically the Borrowers have no contact with the Lender during this process and are solely reliant on the updates from the Loan Officer as to what is going on at any given time.
  2. Real Estate Agents - With so many critical time lines and contingency periods, time is of the essence to constantly communicate the status of the loan and perform specific tasks accordingly. Just like the Borrower's, the Real Estate Agent's often have no communication access to the Lender (and are forced to rely on updates from the Loan Officer working for the Wholesale Mortgage Broker).
  3. Loan Officer working for the Wholesale Mortgage Broker - with all eyes on him/her for answers, this Loan Officer often must rely on professionals from a different company (Lender) to timely and competently perform their jobs. This dynamic alone often proves problematic, as the Loan Officer's reputation is hugely reliant on the performance of professionals with different logos on their business cards! (Note: More information about the importance of reputation will be discussed in Part 2 of this article).
  • Bad reputation & image - In all fairness, Wholesale Mortgage Brokers were overly villianized amidst the fallout of the housing crash (and subsequent mortgage meltdown and economic collapses). Although there were plenty of bad seeds working for Wholesale Mortgage Brokers during this time, there were also plenty of bad seeds spread throughout nearly all facets of the mortgage and real estate related industries. That said, Loan Officer's who work for Wholesale Mortgage Brokers have an additional hurdle to jump through when dealing with Borrowers, Real Estate Agents, and even Lenders who are considering which Loan Officers to work with on Short Sales & REO property sales.
  • Increased Disclosure Requirements - As if the stack of initial and final loan disclosure forms were not large & confusing enough, you can expect additional forms (and potential confusion) when acquiring a loan through a Wholesale Mortgage Broker.

How to choose a Loan Officer, www.ApprovingSD.com

Option 2: Bank / Credit Union

 

The most simplistic definition of a Bank or Credit Union is the source of the money (or in many cases, the "perceived source" of the money). A Loan Officer who works for a Bank or Credit Union (referred to solely as "Bank" from this point on in the article) is to:

  • Attract Borrowers who are seeking a mortgage loan (for the purpose of purchasing a home or refinancing an existing mortgage)
  • Analyze the particular financial profile and goals of these Borrowers
  • Determine which program within the Bank's loan products will best meet the needs of the Borrower

Pros:

  • Borrower's feel good about doing business with "their bank" and will often ignore their other options in the spirit of pursuing this loyalty.
  • The above 4 milestones are performed with the Bank itself (although often within the context of a bureaucratic loan processing center depending on the Bank)

Cons:

  • Borrower confined to one bank (and the specific loan programs and pricing that this particular bank has to offer). This lack of mobility can be detrimental in many ways, including:
  1. Higher interest rates and/or closing costs (fees): Despite the clever advertising gimmicks that dominate the airwaves, there is no magic bank that always has the best pricing! Thus, the ability to shop around is beneficial for the Borrower (and the lack of this option proves detrimental). For a detailed analysis about The Truth Behind Mortgage Quotes, click here.
  2. Fewer approvals, more declines - Different Lenders have different approval guidelines (often referred to as "underwriting overlays"). The lack of ability to shop around also hurts Banks in their quest to maximize the amount of approvals options for any given Borrower (which often frustrates Real Estate Agents who are seeking to meet the housing & lending needs of their motivated Buyers).
  • Slow turn times - Despite the fact that all 4 of the milestones mentioned above are performed "in house" at a Bank, the turn around times to complete the process are typically 50-100% longer than that of a Wholesale Mortgage Broker or Direct Lender. Most professionals who have witnessed this phenomenon describe the bureaucratic process as similar to waiting in line at the Department of Motor Vehicles (DMV). The detrimental results of these slow turn times are:
  1. Longer escrow periods - As of the time this article was written, most Bank's are requesting 45-60 escrow periods (or longer). This mere fact alone can harm the odds that a Buyer will get their offer accepted on a particular home for sale if the Seller wants to close escrow in 30 days or less.
  2. Additional fees for Borrowers - Many Home Sellers will insist on a penalty for closing escrow past the deadline. This fee is often referred to as a "Per Diem" (which in Latin means "per day"). A widely used Per Diem is $100. Thus if a Buyer closes escrow 7 days late, they must pay an extra $700 in late fees ($100 x 7 days).
  3. Fewer homes to select from - In the event that the desired property is involved in a Short Sale, the time lines to complete the process are often reduced significantly (often less than 3 weeks). Banks are typically unable to meet those time lines, which jeopardizes the ability for a Buyer/Borrower to acquire a Short Sale property when working with a Bank to obtain their mortgage.
  • Unlicensed Loan Officers - As mentioned above, not all Loan Officers must be licensed by the Department of Real Estate (DRE) or maintain the same testing provisions of the Nationwide Mortgage Licensing System (NMLS). Simple logic dictates that if indeed all Loan Officer's are providing the same (or very similar) services, they should each be licensed identically. This does not mean that all Bank Loan Officer's are unlicensed, but it does mean that if you are a Loan Officer who wishes to avoid the need of a license, you must work for a Bank.

How to choose a Loan Officer, www.ApprovingSD.com

 

Option 3: Direct Lender

 

The most simplistic definition of a Direct Lender is a Mortgage Consultant who works to:

  • Attract Borrowers who are seeking a mortgage loan (for the purpose of purchasing a home or refinancing an existing mortgage)
  • Analyze the particular financial profile and goals of these Borrowers
  • Identify and deliver the best program for these Borrowers

Pro:s

  • A Direct Lender has each of the "Pros" mentioned above for the Wholesale Mortgage Broker, including:
  1. The ability to "shop around" for the lowest interest rates and closing costs
  2. Access to specialized "niche" programs that cater to a broader range of Borrower approval guidelines (to allow more approvals).
  3. Licensed Agents (Loan Officers)
  • Direct Lenders keep all 4 of the above milestone phases in-house (Processing, Underwriting, Document Preparation, Funding). This control equates to more speed, better communication, and quicker turn times.

Cons:

  • Unrecognizable names - Many Consumers will not work with a company that does not have a well-known name. A couple of recommendations for these people would be to consider:
  1. You can still investigate the validity of companies whom you have never heard of. Many Direct Lenders are governed by the Department of Corporations (so they remain accountable to a larger licensing entity).
  2. Many people will blindly spend hundreds (and often thousands) of extra dollars over the course of their loan just so they can have a recognizable logo on their monthly bill. Think about that fact for a moment. You've got 360 months (30 years) to become accustomed to a new logo on your monthly mortgage bills...shouldn't you have a goal more specific to the numbers involved rather than the logo?

How to choose a Loan Officer, www.ApprovingSD.com

Summary:

  • If your goal is to obtain the lowest interest rates & closing costs on all loan programs, work with a Direct Lender or Wholesale Mortgage Broker.
  • If your goal is to find nontraditional loan programs and expanded approval guidelines, work with a Direct Lender or Wholesale Mortgage Broker.
  • If your goal is to close escrow quickly, work with a Direct Lender.
  • If your goal is to work with Licensed Loan Officers, work with a Direct Lender or Wholesale Mortgage Broker.
  • If your goal is to work with a name you recognize, and you are not in any particular hurry, work with a Bank.

In Part 2 of How To Choose A Loan Officer, the topics of corporate culture, marketing strategies, and customer service philosophies are discussed. Thank you for reading this information...it is my hope that this article is beneficial in your pursuit of knowledge and facts on how to choose a Loan Officer.

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For more information on topics like this, please feel free to visit www.GordonMortgage.com (an educational resource for Borrowers, Real Estate Agents, and Financial Professionals). Educational content provided by:

 

Jason E. Gordon

Branch Manager | Sr. Mortgage Loan Officer

CMPS, CDLP, RCS-D, CDPE, CMHS, CMC, NMLS 259027

 

Gordon Mortgage Group - AmeriFirst Financial Inc.

 

Office: 619-200-8031

Email: jgordon@amerifirst.us

www.GordonMortgage.com

 

11440 W. Bernardo Court, Ste. 300, San Diego, CA 92127

 

What People Are Saying About Jason Gordon

 Not all Mortgage Lenders are alike! Find out what Clients, Real Estate Agents and other Financial & Legal Professionals have to say about Jason Gordon.

 

 

Attention Real Estate Agents!

 Ever heard of a Lender having more "skin in the game" during escrow than a Buyer? Ever wish a Lender would put their money where their mouth is? Learn how the Protect Your Transaction (PYT) program will improve the negotiation leverage for a Buyer, as well as how PYT benefits the Seller & Realtors in this short video.

 

 

 

Recommended Links:

 

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Gordon Mortgage Group - AmeriFirst Financial

 

Licensed by the Department of Corporations under the California Residential Mortgage Lending Act.

AmeriFirst Financial Inc., 1550 E. McKellips Road, Suite 117, Mesa, AZ 85203 (NMLS #145368) Toll free phone (877) 276-1974. Copyright 2012. All rights reserved. This is not an offer to enter into an agreement. Not all customers will qualify. Information, rates, and programs are subject to change without prior notice. All products are subject to credit and property approval. Not all products are available in all states or for all loan amounts. Other restrictions and limitations may apply. AmeriFirst Financial is required to disclose the following licensing information. Please click here for licensing information. 

 

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