Where someone gets their mortgage does matter. The idea that a 30 year fixed mortgage is a 30 year fixed mortgage regardless of where that mortgage is originated is not the case. There are three main sources for obtaining a mortgage. They are a mortgage broker, direct lender and mortgage bank. Each source has its pros and cons and can result in very different results.
First is a mortgage broker. A mortgage broker shops different lenders and matches the borrower with the lender. The broker does not have any real control over the transaction since the decision to lend money is with the lender’s underwriter, not the broker. In addition, the broker does not have the ability to negotiate quantity discounts with a lender since each loan is a single transaction. Since the broker does not have any real liability or any accountability it is not uncommon for brokers to originate the more risky loans. Mortgage brokers usually have the lowest fees and rates but may have problems closing on time or if the situation is out of the box, the broker cannot control the approval process.
A direct lender is your big box lenders such as Wells Fargo, Chase, and Bank of America. A direct lender only has the ability to sell their own loan products and rates. This is fine if they are currently the lowest rates in the marketplace, but not a good choice if they are not the most competitive. An advantage of using a direct lender is they control the entire process. In today’s market this may be advantageous. The flip side of this is the direct lenders are very slow to process and close transactions because they are part of a much larger, less nimble organization. The typical turn time for a mortgage with the direct lenders is 60-75 days.
A mortgage bank shops different investors from their sources of funds. Since the mortgage bank funds the loan with their own money and then sells to an investor, they have complete discretion and control of the transaction. This includes underwriting and structuring the loan to the best favor of the borrower. Most mortgage banks do not service their loans since their role in the transaction is to originate and then sell all loans on the secondary market. Since most mortgage banks also bulk their loans, they can sometimes get better rates and terms than a broker. Every mortgage bank also has broker relationships in which some of the more risky loans can be originated if required.
People often confuse mortgage banks with traditional direct lenders. A direct lender (Wells Fargo, Bank of America, Countrywide, etc) only has the ability to sell their own loan products and rates. A broker or mortgage bank has the ability to shop direct lenders and other sources of mortgage programs for the best terms for their client. It is not uncommon for a broker representing Wells Fargo or a mortgage banker who has Wells Fargo as an investor to offer better rates than Wells Fargo retail branches. The reason is the broker or mortgage banker has more efficient retail operations than the Wells Fargo retail branches.
In today’s mortgage market, the ability to control and shop different investors is an ideal situation. A mortgage bank that can deliver competitive terms while still closing on schedule is critical.
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Gary L. Solka, Mortgage Banker
Sente Mortgage
Gary.Solka@SenteMortgage.com
512-637-9900
www.SolkaTeam.com
