Mortgage brokers are licensed, independent contractors associated with independent, licensed brokerage companies, who work on 100 percent commissions to connect mortgage consumers (those seeking to finance a home purchase, and those seeking to refinance their current homes) with loans from a variety of mortgage banks and lenders. By connecting with a variety of lenders, they are able to offer a wide array of program choices as well as the best possible rates and fees in the marketplace. In addition, a mortgage broker has the ability to move a loan from one lender if needed, to present a complex loan file to underwriters who might understand a specific situation better than others. A declined loan does not necessarily mean a dead deal.
Mortgage bankers or lenders, on the other hand, are usually employees of a mortgage bank who work on some combination of salary and commissions to connect borrowers primarily with loans funded by their employer. Walk into a bank off the street and the person who handles your loan application is a mortgage banker. They are subject only to the guidelines and programs available from their company, limiting the consumers choices. Once a loan is declined, it is dead. Some bankers also broker loans outside of their banks, but they tend to have fewer lender, loan program and rate options available than a broker does.
A new type of company, known as a “net branch” is simply a company who was once an independent mortgage broker, who has partnered with a mortgage banker, and retained their brokerage companies name. Essentially, they are a branch office of the banker and are subject to only the guidelines and programs available from their representative banker or lender.
With that said, in situations where the bank or a home builder is offering truly significant incentives for working with that bank, then the mortgage banker is the way to go. Second, many who are refinancing find that their current mortgage lender may offer a no-fee refinance. Again, I'd encourage you to get a rate quote from a reputable mortgage broker, if you are trying for a no-fee refi with your current lender, to make sure the fees aren't simply being recouped in the form of higher interest.
Now, let's talk about speed and customer service. The customer service extended by an honest, experienced, effective and reputable mortgage broker blows that of even a great mortgage banker out of the water, nine times out of 10. The fact is, brokers usually work on 100 percent commission, which means that they want to get your deal done. Bankers are on a partial commission/partial salary.
This is a critical distinction in a world where the traditional mortgage banks have made it very difficult for a loan to get approved, underwritten and funded; for all these things to happen, you need someone who:
• Is skilled at the art of mortgage; has loads of workarounds up their sleeve; and has a history of overcoming obstacles that come up; • Is truly motivated to close every single transaction they work on; • Has the relationships with various lenders' underwriters to get things done in a timely manner; and • Wants -- even needs -- referrals from you and your broker or agent to generate more business in their long-term business plan.
These characteristics much more often describe mortgage brokers than mortgage bankers or lenders.
In today's market, you may need to remove contingencies in 10, 12 or 14 days to best other offers on a foreclosure or even an individual sale. You might get to the end of a long transaction buying a bank-owned property and find your transaction in jeopardy if your loan doesn't fund within a matter of a couple of days (despite the bank/seller having dragged its feet for the six preceding weeks).
Mortgage bankers rarely have the gumption or the power to speed up the underwriting and funding processes in these sorts of situations, while some brokers can.
And bankers certainly aren't able to close transactions as quickly -- overall -- as top-notch mortgage brokers can. This can mean the difference between getting a particular home or not.
Many of the shadier brokers have self-selected out of the business, as loans are so much harder to do these days. You can eliminate much of the rest of the shady factor by working with a mortgage broker you find by referral; get one from friends or relatives who are very, very happy with their experiences, and ideally have worked with their broker over many years.
