If you have ever financed the purchase of a home or refinanced such a loan, chances are that you used the services of a mortgage banker or mortgage broker.
What’s the difference, you ask? Great question! A mortgage broker is approved with various direct lenders to broker loans to that lender and earns a fee for doing so (usually from the consumer and/or the lender). A mortgage broker does not actually lend any money, they simply arrange the financing.
A mortgage banker also arranges the financing but a mortgage banker actually uses their own credit facility (usually a warehouse line of credit) to fund your loan and they then sell it as a closed loan in the secondary market to the highest bidder for the loan type and criteria. In many cases, the loans’ end buyer is already chosen before the loan is even funded, which limits the risk...a little.
In theory, a mortgage banker would normally have access to slightly better rates because they are eliminating the middle man to a degree but that has changed in the current market. Right now, mortgage brokers generally have access to the same rates that mortgage bankers can offer. A 30 year fixed rate mortgage quote is generally a great way to compare rates between brokers and bankers.
So what does all this mean to you? It means that you can get just as good of a deal and in some cases perhaps a better deal from a mortgage broker as you can with a direct lender. A direct lender may be very limited in their own mix of loan product or qualifying guidelines but a broker normally will have access to several lenders programs and guidelines, which will give you the greatest chance of approval at the best rates.
In the latest mortgage industry meltdown, the media has chosen to represent mortgage brokers as the scum of the Earth and the source of the debacle. The mortgage broker community does bear some of the responsibility. However, mortgage brokers do not create the loan programs and/or guidelines; they are simply delivering them to borrowers who want them. There were plenty of brokers in the business that put supposed naïve consumers into loan programs that were far too aggressive without properly disclosing all of the loan details. Luckily, most of those brokers have left the business and anyone left in the business is likely to be experienced and accustomed to weathering these period storms.
The key to determining who you work with is primarily a function of properly evaluating your mortgage professional’s experience, intellect and integrity. Just like in any service, personal referrals are usually best. Beyond that; simply follow your gut instinct and don’t be afraid to ask questions. If you are getting unacceptable answers, then you probably need to move on to another professional.
