Direct Lender Vs. Mortgage Broker
When you talk to loan officers who work for a direct lender or mortgage broker they most likely will tell you about how great they are and how bad the other guy is. Getting a mortgage is hard enough, it doesn’t need to be made any harder by loan officers who want to bad mouth the competition. The truth of the matter is both have benefits and depending on market conditions one might have better interest rates and terms then the other.
California Home Loan Term: Amortized loan is a loan that has monthly payments which are paid by a borrower to a lender and the payments include interest and principal. Amortized loans can be any length however most amortized mortgages are either 15 or 30 years. Most of the interest is collected in the early stages of the loan as the principal portion of the monthly payments grows with each payment.
The favorite sales pitch from a loan officer at a direct lender is “It’s our money and we make the rules. Using a mortgage broker means you’ll have to pay them and us. Why not cut out the middle man and go directly to the source.” This is to make the borrower think that if you work with a direct lender you’ll get one set of rules (that will work in your favor) and if you work with a mortgage broker you’ll get another (more restrictive rules). Also it’s supposed to make the client think if they use a mortgage broker they’ll pay more in points and fees. This is far from the truth. If it was the case then why do almost 70% of all mortgage transaction in the United States originate with a mortgage broker?
Large banks and direct lenders like Wells Fargo, Washington Mutual, Citibank etc. all have wholesale lending divisions (a wholesale lending division is where banks work with mortgage brokers to obtain loans). In my experience these wholesale lending divisions use much more liberal guidelines than If you were to walk in to one of their branches and apply. Also, since they have the name brand they know you’ll feel more comfortable working with them so they typically charge a premium for that comfort level. I should know as I’ve worked for one the largest direct lenders in the United States and we relied heavily on our name recognition to earn business. Now does this mean that direct lenders always have higher rates? Absolutely not. Sometimes the direct lenders will offer specials or discounted rates that are extremely competitive.
What about those direct lenders that are not named brand companies but call themselves direct lenders? These lenders have “warehouse credit lines” from financial institutions and underwrite the file themselves and then sell to the their financial backer. The main difference between this type of direct lender and a mortgage broker is that they underwrite and fund your file in house while a mortgage broker has the lender perform those functions. So in truth, these direct lenders are not providing loans “at their own terms” they are providing loans that they know their direct lender backer will buy.
The truth about mortgage brokers is that unless you’re working with a knowledgeable and experience loan officer you might run into problems. That loan officer also needs strong relationships with the lenders to ensure the mortgage transaction goes smoothly as well. Working with a direct lender you have one set of guidelines. Working with a broker you have hundreds of guidelines. If the loan officer for the mortgage broker is not on top of those guidelines it could present a problem for you.
|
