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Sep28
Banker or Broker…What’s The Difference?
1 CommentThere has been a significant amount of confusion in regards to this with the growing legislation aimed at putting traditional mortgage brokers out of business (someone had to take the blame for the fall of the mortgage industry, and the bulk of it got placed on “3rd Party Originators, or brokers), and the growing popularity of “correspondent lenders” or mortgage banks.
Traditionally there were two places a person would go if they needed a mortgage, to their local “mortgage broker” or to their local depository bank or credit union. Having worked at both, let me discuss a few of the advantages and disadvantages of each medium:
Depository Banks and credit Unions:
PROS:
- The transaction is handled “In-House” (the loan is originated, underwritten, doc’d, and funded by the same company)
- The bankers thoroughly know the loan products offered by their bank, so pre-qualifications are very accurate.
- The banker has an incredible amount of control over the transaction since they worked for the company funding the loan.
- No “middle man” which eliminates a Yield Spread Premium (money brokers make on the “back end” from banks they place a loan with).
CONS:
- Limited product availability. Since banks and credit unions service the loans they fund, they just can’t offer an extremely wide variety of loan products.
- Can only offer loan programs offered by their bank, at the rates their banks is offering them.
Mortgage Brokers:
PROS:
- Access to many banks loan programs, and thus could offer a huge selection of loan programs.
- Can shop the different banks to find out which bank is offering the lowest rates
CONS:
- They don’t actually work for the bank funding the loan, so they have very little control over the loan process once it’s submitted to the bank.
- They are a middle man, so there are additional fees (YSP), broker fees, paid by the borrower.
- They work with so many different banks it’s impossible for them to thoroughly understand the “ins and outs” of every loan product available to them. This results in weaker pre-qualifications and more headaches in underwriting.
As you can see, the pros of a bank are cons of the broker, and visa versa.
But what if there was a better way, a “hybrid lender” so to speak, one with the advantages of both bankers and brokers, with none of the disadvantages? Wouldn’t that type of lender be ideal?So let’s look at how a “hybrid lender” will benefit you:
PROS:
- The transaction is handled “In-House” (the loan is originated, underwritten, doc’d, and funded by the same company).
- A loan officer will thoroughly know the loan products offered by my bank, so pre-qualifications are very accurate.
- A loan officer will have an incredible amount of control over the transaction since I work for the company funding the loan.
- No “middle man” which eliminates the Yield Spread Premium.
- Access to many banks loan programs, and thus could offer a huge selection of loan programs.
- Can shop the different banks to find out which bank is offering the lowest rates, and lock and eventually sell the loan to them.
CONS:
- ?
Some Hybrid Lenders:
Security Home Mortgage
Rick Anderton
(801) 414-8055
rick@lendutah.comCity1st Mortgage
DJ Gardner
(801) 226-7018
djgardner@city1st.com
One Response to “Banker or Broker…What’s The Difference?”
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Great post, very insightful and informative.
I would clarify one point, and that is that correspondent lenders and Banks still earn the YSP and another premium called SRP or Service Release Premium. The difference between them is that Banks and Correspondent lenders are not required to disclose these fee’s like Brokers are.
The greatest advantage as you mentioned is the in house processing/underwriting which can greatly speed up the process and result in loans closing faster.
It is important to remember that there is no fiduciary (Agency) relationship with either a bank or a broker which is why it is so important to shop around and make lenders compete.
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